Home / Markets / Cryptocurrency /  Cryptos appeal to not die despite volatile markets, macro risks, tax rules. An optimistic case

Cryptos appeal to not die despite volatile markets, macro risks, tax rules. An optimistic case

The long term case of crypto market is promising. (REUTERS)Premium
The long term case of crypto market is promising. (REUTERS)

  • The crypto market has erased its $1 trillion market last month. After hitting an all-time high of $68,786.10 in November last year, Bitcoin has now given up 75% of its gains with virtually every buyer of the cryptocurrency since February in losses due to the dramatic crash.

There are more reasons to exit the cryptocurrency market in the latest scenario than to hold onto this complex investment mechanism. Some of the factors which have dampened crypto investment mood are - new taxation in India, geopolitical tensions, recession fears, liquidation of hedge funds, suspension of withdrawals, liquidity crunch, macroeconomic risks, and global bear run among others. These have sent the crypto market into a frenzy of selling pressure. However, as they say, investments in markets are sentiment driven. Hence, it's rather advised to not panic but instead hold patience in market instruments as the long-term picture is broadly fruitful. That said, the long term case of crypto market is promising. 

On Saturday, as per CoinMarketCap data, the market recovered early losses and gained momentum. At present, the global crypto market is trading at $964.11 billion surging by 3.86% over the last day. However, the crypto volumes stood at $54.72 billion down by 17.14% over the day. Bitcoin’s dominance is currently 41.94%, a decrease of 0.65% over the day. The leader of the market is currently above $21,200. Counterpart Ethereum neared $1,350 up nearly 8%.

The crypto market has erased its $1 trillion market last month. After hitting an all-time high of $68,786.10 in November last year, Bitcoin has now given up 75% of its gains with virtually every buyer of the cryptocurrency since February in losses due to the dramatic crash, which saw the cryptocurrencies broadly nosedive and some even collapsing like Terra sisters, and the latest fatality 3AC.

But the crypto market is not alone to record a deep correction in its levels, the case has been the same for global equity markets as well.

The crypto market currently faces liquidity scarcity. Celsius which halted withdrawals in June due to heavy losses arising from a deep depression in the crypto market -- has this week voluntarily filed for bankruptcy. Celsius has a deficit of $1.19 billion on its balance sheet.

Celsius is just one of the dominos struggling with illiquidity in the market. Other exchanges like exchanges Binance, CoinFlex, Vauld, and Voyager Digital among others have also halted their withdrawals. Also, markets face the liquidation of hedge funds like Three Capital Arrows (3AC).

The crypto market is volatile tracking the equities market globally due to macroeconomic risks. Apart from this, Indian investors also face new tax rules. Back at home, on cryptocurrencies, there is a 30% tax rate with effect from April 1, and a 1% tax deducted at source (TDS) has also come into force since the start of this month.

But despite the turmoil in cryptocurrencies currently, the market is seen to be a long-term wealth creator. It is believed that the crypto market is revolving and will be steadier than compared in its current fragile state.

Rajagopal Menon, Vice President, WazirX said, "as per our recent Trader Sentiment Survey, we have seen that Hodlers still have a high sentiment in terms of investing in crypto. Post 1st of April, they have continued to retain their positions, with 45% saying they would hold on to their positions. This signifies their faith that the tax provisions will be made more conducive in the longer term. With the implementation of TDS, we expect Hodlers on Indian exchanges to increase as trading decreases. It will promote an ideological shift of crypto from a get-rich-quick scheme to a long-term wealth creator."

Explaining in detail why hodlers are keen on holding cryptocurrencies, Amanjot Malhotra, Country Head - India, Bitay highlighted three points.

1. Lack of Supply: Illiquid Supply, which tracks the volume of coins held in wallets with little to no history of spending, has surpassed the May 2021 peak, reaching 76%. These often represent coins socked away in cold storage, or storing crypto offline, and the wallets of HODLers who undertake a dollar-cost averaging strategy. Malhotra said, “We can make an estimation that this is likely, a sign of accumulation."

2. Past Experience: Despite the macro and geopolitical risks currently heightened by Russia’s invasion of Ukraine, bitcoin (BTC), hodlers continue to accumulate as they know that Bitcoin has gone through these cycles earlier as well and it will bounce back and it is a matter of time. All they have to do is wait for the time when it does and then they can book their profits.

3. New Tax Rules: The implementation of the new tax rules on crypto has made sure that investors will be very cautious while entering the Indian market as their gains will be taxed 30% and the losses in another trading pair can not be offset. More importantly, each transaction has TDS deducted and reported to the government. A lot of the users are still not sure about how to file taxes with their crypto return and don’t want to enter a grey zone with the regulators.

Further, Malhotra said, "After a devastating 6 months in the crypto market, holders are expecting some good news for the Indian crypto ecosystem. One is that the global crypto markets will recover and the prices of Bitcoin, Ethereum, and other cryptocurrencies will go up and touch new all-time highs. Seconds, they're expecting that the government will cut some slack in the crypto regulations in the coming budget announcement."

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