Tag: crypto

Bitcoin barrels into ‘Death Cross’ as chartist backdrop darkens, BFSI News, ET BFSI

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Amid Bitcoin’s decline this week, eagle-eyed chart-watchers noticed an ominous-sounding technical breach could be at hand: the coin is approaching a bearish pattern known as a death cross.

The world’s largest digital currency has slumped, pushing its average price over the last 50 days close to its 200-day moving average. Should the short-term line cross below the long-term one, the coin would reach the forbidding formation. The indicator is typically seen as a closely-watched technical measure that could offer a hint at more pain to come.

The last time Bitcoin marked a death-cross was in November 2019 — the cryptocurrency was down roughly 5% one month after crossing it.

While it’s not done so yet, “the collision seems unavoidable at this point,” wrote Mati Greenspan, founder of Quantum Economics. “A death cross could be an indication that prices may remain subdued for a while to come.”

Bitcoin has been mired in a downtrend spiral in recent weeks, losing about 45% since mid-April, when it hit a record high. The recent selloff was exacerbated by billionaire Elon Musk’s public rebuke of the amount of energy used by the servers underpinning the token. Increased Chinese regulatory oversight also soured the mood.

On Tuesday, Bitcoin tumbled as analysts pointed to a technical breakdown as well as the recovery of Colonial Pipeline Co.’s ransom as evidence that crypto isn’t beyond government control. The U.S. recovered almost all the Bitcoin ransom paid to the perpetrators of the cyber attack on Colonial last month in a sign that law enforcement is capable of pursuing online criminals even when they operate outside the nation’s borders.

In the meantime, chartists are eyeing the $30,000 level, which the coin briefly touched last month during a brutal selloff. Breaching that round-number mark, they say, could trigger another wave of selling given the lack of technical support between $20,000 and $30,000.

Still, Greenspan adds a caveat about the death-cross: it’s typically followed by a so-called golden cross, which tends to be a bullish signal. “If prices bottom out around here, we can probably expect a strong rally to resume once the market is ready for it,” he said.



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Crypto versus gold debate rages on Wall Street as flows reverse, BFSI News, ET BFSI

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Gold is back with a vengeance this month just as the crypto rally falls apart, refueling the Wall Street debate over the link between the two putative hedging assets.

Bullion funds have seen the biggest two weeks of inflows since October and prices are edging closer to $1,900 an ounce. In contrast, Bitcoin has plunged by almost 40% from a $63,000 peak and funds are recording outflows.

Yes, the weaker dollar and falling inflation-adjusted yields are big reasons for the gold revival. Elon Musk-spurred volatility, meanwhile, has snuffed out some of the speculative euphoria in Bitcoin, while undermining its ambition to attract the institutional crowd.

Yet, all this fascinates a market cohort that point out the parallels between digital gold and the real deal. They’re both viewed as inflation hedges, commodities in scarce supply and capture the cultural divide between young, tech-obsessed traders and boomer traditionalists.

Meanwhile, the likes of JPMorgan & Chase & Co. and ByteTree Asset Management say gold’s recent ascent appears to have come at least partly expense of Bitcoin as investors rotate between the two.

“There is still so much confusion between Bitcoin and gold,” wrote Charlie Morris, founder of ByteTree in a note. “They coexist, and they both thrive in an inflationary environment.”

In a report on shifting gold and Bitcoin trends, Morris suggested that fund flows are having an unusually large impact in boosting the gold price, and vice versa Bitcoin’s outgoing flows are depressing prices.

Past may be prologue: Earlier this year, Bitcoin funds pulled in institutional cash as money managers extolled a case for digital currencies to creep into gold’s spot in a portfolio. With the economic growth in full swing, more than $20 billion then left bullion-backed ETFs in the six months to April.

For some strategists, the bullion market is a starting place to divine their price forecast for Bitcoin. In a world where investors allocate gold and Bitcoin evenly to their portfolios and the two assets converge in volatility, it would imply a valuation of Bitcoin at $140,000, JPMorgan has previously estimated.

“Needless to say such convergence or equalization of volatilities or allocations is unlikely in the near future,” strategists led by Nikolaos Panigirtzoglou wrote.

Since the Covid-19 vaccine breakthrough triggered an economic rebound in November, exchange-traded funds tracking gold sold almost 12 million troy ounces through to the start of May, worth about $22.5 billion at today’s price.

Investors pulled almost $14 billion from the SPDR Gold Shares ETF (ticker GLD) in the period, helping cut total assets in the world’s largest gold ETF by 29%. Some $1.6 billion has flowed back into the fund to put May on course for the best month since July.

In day-to-day action, the direct link between gold and Bitcoin is hard to pin down, suggesting the connection is more about market psychology than real-money flows. The threat of price pressures and weakening dollar are good reasons for the metal’s current rally.

And while predictions for Bitcoin prices have been chastened by the selloff, the enthusiasm hasn’t gone away. Bloomberg Intelligence strategist Mike McGlone, who has a price target of $100,000 for Bitcoin, says there’s still a chance crypto can become a digital reserve asset and that makes it worth the risk.

“Gold may be losing its significance, so it may be simply prudent to diversify,” wrote McGlone. “The human nature of acknowledging a new asset class is what we see as a primary Bitcoin support.



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BlackRock says it is ‘studying’ crypto but cites volatility, BFSI News, ET BFSI

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NEW YORK: BlackRock Chief Executive Larry Fink said on Wednesday it is studying cryptocurrencies like bitcoin to determine whether the asset class could offer countercyclical benefits.

In response to a shareholder asking whether the company would invest in bitcoin, Fink told its annual meeting: “The firm has monitored the evolution of crypto assets. We are studying what it means, the infrastructure, the regulatory landscape.”

BlackRock, the world’s largest asset manager running roughly $9 trillion, is a long-term investor, Fink said. And crypto currencies could potentially play a role in long-term investing as an asset class similar to gold.

For now, it is too early to determine whether cryptocurrencies are “just a speculative trading tool” he said. He also noted that broker dealers are the ones making the most money from the volatility of many cryptocurrencies and their wide bid-ask spreads.

Earlier in the meeting, BlackRock said all of its 16 director nominees were elected with a majority of shareholder votes cast. It also said that executive pay had been backed by 93% of shareholder votes.

A shareholder resolution to convert the company into a public benefit corporation – with the aim of putting all stakeholders on equal footing with shareholders – was rejected, receiving only 2.3% of the vote. The vote was in line with what similar proposals have received this year at other big U.S. companies and financial firms.



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Carl Icahn says may get into cryptocurrencies in a ‘big way’, BFSI News, ET BFSI

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Activist investor Carl Icahn is interested in getting into cryptocurrency in a “big way,” and may eventually put more than $1 billion into an alternative currency.

While Icahn hasn’t bought any cryptocurrency yet, the billionaire investor said in a Bloomberg TV interview that he studies Bitcoin, Ethereum and the crypto sector as a whole to determine where the opportunities are. Alternative currencies are gaining popularity as a natural manifestation of inflation in the economy, he added.

Any criticism around cryptocurrency having no underlying value is a “little wrong-headed,” Icahn said.

“Well, what’s the value of a dollar? The only value of the dollar is because you can use it to pay taxes,” he said. “I’m looking at the whole business, and how I might get involved in it.”

Icahn also said he believes people are looking at alternative currencies because parts of the equities market are being traded at “ridiculous prices.” He referred not only to those being driven up as so-called meme stocks, but also certain strategies being offered by money managers.

“I don’t think Reddit and Robinhood and those guys are necessarily bad, I think they do serve a purpose,” Icahn said. “Money is funneling back into companies. Some of these companies might be OK, but a number of them, the risk-reward is absurd.”



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Why has the price of Bitcoin been falling?, BFSI News, ET BFSI

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Even by Bitcoin‘s standards, Wednesday was pretty wild.

The price of the famously volatile digital currency fell nearly 30% at one point after the China Banking Association warned member banks of the risks associated with digital currencies. The decline narrowed to below 10% in the afternoon, but Bitcoin had still lost about $70 billion in market value in 24 hours.

Bitcoin has lost about 38% of its value since April 13 when it hit a high of more than $64,600. The China warning was just the latest headwind: Before Wednesday, Tesla’s decision to not accept the digital currency as payment for cars – after it said it would – and murmurings in Washington about tighter regulation of digital currencies had put pressure on Bitcoin. The price is still up about 31% in 2021 and nearly 300% from a year ago.

Here’s a look at Bitcoin and digital currencies in general:

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HOW BITCOIN WORKS

Bitcoin is a digital currency that is not tied to a bank or government and allows users to spend money anonymously. The coins are created by users who “mine” them by lending computing power to verify other users’ transactions. They receive Bitcoins in exchange. The coins also can be bought and sold on exchanges with U.S. dollars and other currencies. Some businesses take Bitcoin as payment, and a number of financial institutions allow it in their clients’ portfolios, but overall mainstream acceptance is still limited.

Bitcoins are basically lines of computer code that are digitally signed each time they travel from one owner to the next. Transactions can be made anonymously, making the currency popular with libertarians as well as tech enthusiasts, speculators – and criminals.

Bitcoins have to be stored in a digital wallet, either online through an exchange like Coinbase, or offline on a hard drive using specialized software. According to Coinbase, there are about 18.7 million Bitcoins in circulation and only 21 million will ever exist. The reason for that is unclear, and where all the Bitcoins are is anyone’s guess.

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WHAT HAPPENED TO THE PRICE?

On Wednesday, a statement posted on the Chinese Banking Association’s website said financial institutions should “resolutely refrain” from providing services using digital currencies because of their volatility.

Virtually every cryptocurrency fell after the industry group’s statement.

As of 4:15 p.m. eastern time Wednesday, Bitcoin was down more than 7% at around $40,310 per coin. Most cryptocurrencies lost between 7% and 22% of their value and shares of Coinbase dropped 5.4%.

It’s not unusual for the value of Bitcoin to change by thousands of dollars in a short time period, though swings totaling around $20,000 in one day are extreme. On the last trading day of 2020, Bitcoin closed just under $30,000. In mid-April, it flirted with $65,000.

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DOESN’T ELON MUSK HAVE A ROLE HERE?

Yes, and a fairly big one. Musk announced in February that his electric car company Tesla had invested $1.5 billion in Bitcoin. In March, Tesla began accepting Bitcoin as payment. Those actions contributed to the run-up in Bitcoin’s price, and Musk also promoted the digital currency Dogecoin, which also spiked in value.

However, Musk reversed course in just a short time, saying last week that Tesla would stop accepting Bitcoin because of the potential environmental damage that can result from Bitcoin mining. The announcement sent Bitcoin falling below $50,000 and set the tone for the big pullback recently in most cryptocurrencies.

A number of Bitcoin fans pushed back on Musk’s reasoning. Fellow billionaire Mark Cuban said that gold mining is much more damaging to the environment than the mining of Bitcoin.

A 2019 study by the Technical University of Munich and the Massachusetts Institute of Technology found that the Bitcoin network generates an amount of CO2 similar to a large Western city or an entire developing country like Sri Lanka. But a University of Cambridge study last year estimated that on average, 39% of “proof-of-work” crypto mining was powered by renewable energy, primarily hydroelectric energy.

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BUT SOME COMPANIES ARE USING BITCOIN?

The digital payment company Square and its CEO Jack Dorsey – also the CEO of Twitter – have been big proponents of Bitcoin. Overstock.com also accepts Bitcoin, and in February, BNY Mellon, the oldest bank in the U.S., said it would include digital currencies in the services it provides to clients. And Mastercard said it would start supporting “select crypto currencies” on its network.

Bitcoin has become popular enough that more than 300,000 transactions typically occur in an average day, according to Bitcoin wallet site blockchain.info. Still, its popularity is low compared with cash and credit cards.

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THERE IS SKEPTICISM AROUND BITCOIN?

Yes, plenty of it. Tracking Bitcoin’s price is obviously easier than trying to figure out its value, which is why so many institutions, experts and traders are skeptical about it and cryptocurrency in general. Digital currencies were seen as replacements for paper money, but that hasn’t happened so far. Federal Reserve Chair Jerome Powell has said the central bank prefers to call crypto coins “crypto assets,” because their volatility undermines their ability to store value, a basic function of a currency.

While some banks and financial services companies are getting in on it, others are staying away.

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COULD A DIGITAL CURRENCY SELL-OFF CAUSE WIDESPREAD DAMAGE?

Regulators aren’t very worried about a possible crash in digital currencies dragging down the rest of the financial system or economy.

Even with the recent sell-off, digital currencies have a market value of about $1.72 trillion, according to the website coinmarketcap.com. But that pales compared with the $46.9 trillion stock market, $41.3 trillion residential real estate market and nearly $21 trillion Treasury market at the start of the year.

The European Central Bank said Wednesday that the risk of cryptocurrencies affecting the financial system’s stability looks “limited at present.” In large part, that’s because they’re still not widely used for payments and institutions under its purview still have little exposure to crypto-linked instruments.

Earlier this month, the Federal Reserve said a survey of market contacts found roughly one in five cited cryptocurrencies as a potential shock to the system over the next 12 to 18 months. That’s a turnaround from the fall, when a similar survey found none mentioning cryptocurrencies.

HOW MUCH OVERSIGHT IS THERE?

Washington officials have been talking about regulating digital currencies more, and worries about a heavier hand have played a role in the recent swoon in prices.

Gary Gensler, who took over as chairman of the Securities and Exchange Commission last month, has said that cryptocurrency markets would benefit from more oversight to protect investors.

In a hearing before the House‘s financial services committee earlier this month, Gensler said neither the SEC nor the Commodity Futures Trading Commission, which he used to head, has a “regulatory framework” for trading on cryptocurrency exchanges yet. He said he thought Congress would ultimately have to address it because “there’s really not protection against fraud or manipulation.”

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HOW BITCOIN CAME TO BE

It’s a mystery. Bitcoin was launched in 2009 by a person or group of people operating under the name Satoshi Nakamoto. Bitcoin was then adopted by a small clutch of enthusiasts. Nakamoto dropped off the map as bitcoin began to attract widespread attention. But proponents say that doesn’t matter: The currency obeys its own internal logic.

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Bitcoin chartists see rout worsening with $40,000 in focus, BFSI News, ET BFSI

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By Joanna Ossinger

A cohort of chart watchers on Wall Street say Bitcoin’s deepest selloff since crypto mania kicked off last year looks set to intensify.

Evercore ISI’s Rich Ross reckons prices are destined to fall back to the 200-day moving average, following a path of other speculative assets, which would put Bitcoin back at $40,000 compared with just under $44,000 currently.

Others are watching for a pattern of “lower highs and lower lows” and say Elon Musk’s unpredictable tweets will keep traditional investors on the sidelines. There’s also speculation that gold is starting to draw money away from crypto.

“The momentum has now quite decisively shifted to the bears,” said Tallbacken Capital Advisors LLC Chief Executive Officer Michael Purves, who correctly predicted last month that Bitcoin would decline.

Bitcoin is still up more than 300% since last May, but the speed of the recent rout has shaken crypto’s new believers and cast doubt on the idea that it’s maturing into a more stable asset class. Prices have fallen about 30% from intraday highs in April, when prices topped $64,000.

Purves says the next important level for Bitcoin is $42,000 because it roughly equates to where the rally topped out in January and a 50% retracement from December 2020 levels. If Bitcoin breaks through that level, more losses are ahead, but if prices can hold above the support, then it might be the beginning of a new rally, Purves predicted.

“A pullback was bound to happen,” said Justin Chuh, a senior trader at Wave Financial, which invests in crypto assets. “This is healthy, but I think we all wish this didn’t happen.”

The counterpoint comes from Fundstrat Global Advisors. In a note on Monday, strategist David Grider laid out nine reasons explaining why he thinks prices are primed to bounce, including high levels of short interest and the fact that corrections like this tend to be normal in a crypto bull market.

“We don’t know the future, but we think odds are we’re close to the bottom and don’t want investors to ‘panic sell’ here,” Grider wrote.

Anchorage Digital Bank, which runs a digital asset platform for institutional investors, said it’s seeing clients maintain or increase crypto holdings. “They’re looking at this as good entry point,” said Diogo Monica, president and co-founder of the California-based bank.

Other chart watchers are turning to ETFs as a proxy for where the crypto market is headed. SentimenTrader’s Dean Christians is monitoring a blockchain-focused fund called Amplify Transformational Data Sharing ETF.

“I would watch the breakdown pivot point at $48.75,” he wrote in a note Monday. “If it fails to recover above that level, take note.”



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Have IPL ads led to a fresh clampdown on Indian crypto exchanges?, BFSI News, ET BFSI

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When dogecoin turned to be the new sensation on the crypto street, many Indian investors could just marvel at the image of the dog on the coin, but not buy it.

The reason was their purchases are not going through as some banks have directed payment gateways not to process cryptocurrency­related transactions.

Since early this month, leading banks, notably private sector lenders ICICI Bank and IndusInd Bank, have asked payment gateway partners to stop processing such transactions.

Axis Bank, Kotak Mahindra Bank, Citibank, and others are limiting their exposure to the cryptocurrency market.

Banks, the industry sources said, have stopped issuing merchant IDs to payment gateways, and have asked these intermediaries to tighten scrutiny while dealing with cryptocurrency exchanges in India.

The issue started in late February and according to experts, the recent surge in the market, dogecoin frenzy and advertisements by crypto exchanges during IPL led to a fresh clampdown on the cryptocurrency.

The aggressive marketing push by crypto exchanges on TV during the IPL, OTT channels and through social media influencers has caused the regulator to clamp down as the industry is not licensed in India.

Dogecoin trading volumes from India have more than trebled since April and platforms have witnessed record-breaking transaction volumes.

Regulator against it

According to reports, the Reserve Bank of India, is informally urging lenders to cut ties with cryptocurrency exchanges and traders as the highly speculative market booms, despite a Supreme Court ruling that banks can work with the industry.

The guidance comes as the Indian government is drafting a law to ban cryptocurrencies and penalise anyone dealing in them, which would be among the most sweeping crackdowns on the new investing fad in the world. But with the COVID-19 crisis engulfing the country, no one is sure when such a bill may be passed, adding to investors` confusion.

The Reserve Bank of India (RBI) in 2018 had forbidden banks from dealing in all transactions related to bitcoin and other such assets. That diktat was challenged by the crypto exchanges and in March 2020, India`s top court overturned the RBI ban and allowed lenders to extend banking facilities to them.

With investors continuing to rush into the hot new asset class, however, regulators appear to be gearing up for another try.

Earlier this year, RBI Governor Shaktikanta Das said that they have “major concerns (around crypto) from the financial stability angle.”.

Growing frenzy

Thousands of new users are piling into the system every day at a time when the prices of major digital currencies have been on the rise. There are over 10 million crypto investors in India with total holdings of over Rs 10,000 crore, according to industry estimates. No official data is available.

Crypto platforms, for their part, are in the process of sending a communication to all major banks about the Supreme Court ruling of February 2020 that revoked the banking ban and declared that the central bank cannot issue any formal guidelines or directly regulate these exchanges.



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Second-biggest cryptocurrency ethereum breaks $4,000 to hit record high, BFSI News, ET BFSI

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LONDON/SINGAPORE: Cryptocurrency ethereum broke $4,000 for the first time on Monday, climbing to a new peak for a third day in a row on bets it may find new uses, although some analysts said it was overvalued at current levels.

Ethereum, the second-largest coin by market capitalisation, jumped more than 6% to just below $4,175, and was last up around 2%.

It has soared this year, fuelled by expectations of wider use, based in part on its role in decentralised finance – “DeFi” – platforms that facilitate crypto-denominated lending outside traditional banking.

An upcoming technical change to its software seen as reducing its supply has also provided a boost, while new institutional investors in the crypto sector have warmed to it amid a tepid quarter so far for bitcoin.

“(Crypto has) got a lot more institutional involvement than people who haven’t followed the market believe,” said Chris Weston, head of research at brokerage Pepperstone.

“And everyone’s been in ethereum. It’s not a meme joke coin, it actually has some application use,” he added, referring to its role in DeFi.

But some analysts said ethereum’s increasing valuation was not underpinned by data of how widely it is used.

“The continued divergence of its price relative to network activity raise questions about its valuation,” J.P. Morgan analysts wrote in a report to clients dated May 7.

Factors such as the number of active digital addresses in its network would be more consistent with a price of around $1,000, the US bank said.

In the crypto world, the terms “ethereum” and “ether” have become synonymous. Technically, ethereum is the blockchain network in which applications are embedded, while ether is the token or currency that enables or drives the use of these applications.

Altcoins

Bitcoin, the largest cryptocurrency, rose to a three-week high above $59,600 on Monday. Dogecoin, a recent outperformer, stabilised after losses on Sunday after comments by Tesla Inc chief Elon Musk on the Saturday Night Live TV show, where he said it was a “hustle”.

Smaller cryptocurrencies, like Dogecoin, known as “altcoins,” have been in demand in the past few weeks, pushing bitcoin’s share of the overall $2.5 trillion digital currency market to its lowest in around two years.

Dogecoin, which began as a social media joke in 2013, is up more than 700% in the last month.

It was last trading at $0.51, after tumbling 38% in the last 24 hours on Musk’s comments. It later steadied after Musk’s commercial rocket company SpaceX said it would accept the meme-inspired cryptocurrency dogecoin as payment.

The meme-based coin has become the fourth-largest digital currency, with a market capitalisation of $69 billion, according to CoinMarketCap. It hit a record high on Thursday above $0.73.



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Coinshares data, BFSI News, ET BFSI

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NEW YORK: Inflows into cryptocurrency funds and products hit $4.9 billion as of April 16, with the pace of increase slowing a bit in the first two weeks of the month after hitting record levels in the first quarter, data from digital currency manager Coinshares showed on Tuesday.

Inflows in the first two weeks of April hit about $400 million to $4.9 billion, or about 9% higher than an all-time high of $4.5 billion in the first three months of the year.

The pace of inflows had already moderated in the first quarter, after a 240% surge in the fourth.

That said, inflows in the second week of April totaled $233 million, the largest since early March, Coinshares said.

Bitcoin’s rise also slowed in the first two weeks of the month, growing just 5.7%, although it hit a record just under $65,000 during that period. After touching that all-time peak last week, bitcoin has plunged nearly 18% in six days. Bitcoin last traded up 0.8% at $56,161.

“There were … signs of excessive exuberance in the market, and a correction looked imminent,” said Pankaj Balani, chief executive officer of Delta Exchange, a crypto derivatives trading platform.

Inflows last week were more spread out to include other digital assets outside of bitcoin and ethereum.

Bitcoin still saw the largest inflows of $108 million, with ethereum snagging $65 million. But investors poured money into other digital tokens, including bitcoin cash, Polkadot, Binance, and Tezos, Coinshares data showed.

Crypto assets under management (AUM) have also surged to a peak of $64.2 billion, the data showed. In the first quarter, the sector’s AUM was $59 billion. Last year, assets under management for the sector hit $37.6 billion.

Grayscale is still the largest digital currency manager, with $49.5 billion in assets as of the second week of April, while CoinShares, the second biggest and the largest European digital asset manager, oversees about $5.7 billion in assets.

XRP has been the most popular digital asset in recent weeks with weekly inflows of $33 million, nearly doubling its assets under management to $83 million.



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What’s next in the world of cryptos and blockchain?

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The past year has seen an immeasurable surge in interest, particularly institutional interest, in cryptocurrency (also known as crypto-assets, digital assets, or virtual currency) and blockchain. Major developments include Visa announcing settlements using cryptocurrency, PayPal allowing its users to buy, sell and hold cryptocurrency, Tesla announcing a $1.5-billion investment in Bitcoin as well as willingness to accept Bitcoin as payment for its cars, and Morgan Stanley adding Bitcoin exposure to 12 of its mutual funds’ investment strategies.

What is it?

Bitcoin, conceived in 2008, was the first cryptocurrency, and the first instance of blockchain technology. Cutting the clutter, what it enabled was the transfer of value across the Internet without requiring an intermediary. Traditionally, trusted intermediaries such as banks or stock exchanges have always had to intermediate such transactions, which is perceived to drive up costs and result in a single point of failure. Bitcoin aimed to reduce these costs and decentralise the risk of any potential failure. It also allowed transactions to be cryptographically verifiable by anyone, as transactions are recorded on a public ledger.

While Bitcoin was simply focussed on value transfer, new blockchains such as Ethereum extended the same concept to all manner of computer applications –file storage, voting, and decentralised exchanges. For instance, while most of us use file storage services run by popular tech companies, a blockchain-based system would not be dependent on any single entity. It is another matter that intermediaries are still important in the cryptocurrency and blockchain ecosystem, as they help make the technology easy to use. To make an analogy, while one can theoretically set up their own e-mail server, most of us choose popular e-mail service providers.

Pros and cons

Cryptocurrencies and blockchains bring many advantages, including cost-savings, decentralisationand transparency. Various government agencies have recognised this. But blockchains are not a magic bullet, and like any technology, come with trade-offs. Government concerns include volatility, money-laundering, risks to the monetary system, foreign exchange control, tax evasion and cybersecurity.

But cryptocurrencies and blockchains are platform technologies like the Internet. Where the Internet enabled the transfer of information nearly instantly across borders, cryptocurrencies enable the transfer of value in a similar way, leading to the moniker, the ‘Internet of Value’. Like information, value transfer can be positive or negative. While the Internet enables family and friends to bond across borders like never before, it also enables child pornography and other criminal activities at scale. Similarly, cryptocurrency is being used by legitimate commercial and non-profit enterprises, including UNICEF, which launched a ‘CryptoFund’ allowing it to receive and disburse cryptocurrencies to fund projects in emerging markets, and the World Food Programme, which is using cryptocurrency networks to expand refugees’ choices in how they access and spend their cash assistance. With new use-cases like Non-Fungible Tokens (NFTs) and smart contracts, software developers and creative professionals across the world, including India, are finding new opportunities for growth and expression. Doubtless, cryptocurrencies are also being used by bad actors for purposes like extracting ransom remotely or trading in illegal goods. As discussed below, the answer to this has to be regulation and not prohibition.

Regulation and prohibition

When a 2019 Inter-Ministerial Committee (IMC) report proposed an outright ban on cryptocurrencies in India, along with a 10-year jail term even for holding cryptocurrency, participants in this nascent but fast-growing ecosystem in India were shocked and disappointed.

The proposal of the IMC has so far not been acted on, and since then, public statements by government stakeholders have been more measured, with the Finance Minister stating that the government will take a calibrated approach towards cryptocurrency and that a proposal would shortly be presented to the Cabinet. Potentially encouraging signs in this regard are the Ministry of Corporate Affairs recently requiring companies to disclose cryptocurrency holdings on their balance sheets, and statements in Parliament regarding how cryptocurrencies are taxed under income tax and GST laws. At a policy level, regulating cryptocurrencies has the advantage of maintaining oversight of the system (through exchanges, for instance). It avoids the risk of bad actors merely moving underground while good actors are deprived of access to a legitimate technology and asset, forcing them to move overseas.

Further, banning cryptocurrency would sever much more than investment and trading – it would cut off many kinds of blockchain applications that use tokens, some of which are used by major Indian and international enterprises. It would also eliminate a burgeoning ecosystem of thousands of blockchain software developers, who need to use tokens to pay the blockchain network to run their applications. Regulators should look at a broader perspective and, besides regulating trading, consider enabling regulations for securities tokens and Initial Coin Offerings, utility tokens, NFTs, etc., all of which will spur innovation in their respective sectors.

From a Constitutional perspective, legitimate trade can only be restricted by reasonable measures. Outright bans have been disfavoured by the Supreme Court unless there is no less invasive measure available. Besides the fundamental right to trade, other rights at stake are the rights to property and privacy, and the right against arbitrary or discriminatory State action.

The Supreme Court, in March 2020, found that the Reserve Bank of India circular prohibiting virtual currency transactions through regulated banking channels was disproportionate and violated the fundamental rights of cryptocurrency exchanges. Any outright ban on cryptocurrency is a far more extreme step – confiscating an estimated Rs. 7,000 crore worth of legitimate assets from 70 lakh Indians – and is likely to face an uphill battle to pass muster.

Alternatives to a ban

On the other hand, several alternatives to a ban are available. Cryptocurrency intermediaries (exchanges and wallet providers) should be licensed like financial sector intermediaries and subject to various checks and balances including KYC norms (currently being followed by self-regulation). Leading jurisdictions, including the US, UK, EU, Canada, Australia, Japan, Singapore, and even countries with exchange controls like South Korea, have found ways to successfully regulate cryptocurrency without resorting to a ban, despite having the same regulatory concerns as India.

Along with their benefits, powerful economic phenomena have historically presented concerns, and we are still grappling with the role of cash in money-laundering and with ensuring investor protection in the stock market.

Interestingly, a 1948 Government of India report observed that “[n]ot only the organisation of the stock market was found defective, its functioning has also often been detrimental to the interests of investors and of the national economy as a whole. Safety for dealings is largely non-existent… Perhaps the most objectionable feature is the violently fluctuating character of prices in the stock market.”

Needless to say, the stock market was never banned in India.

 

(The writers are Leaders, Technology Law, Nishith Desai Associates)

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