3 min read.Updated: 21 Feb 2021, 07:52 PM ISTLivemint
Oddly, India’s proposed law to clamp private digital currencies has not deterred a surge of sign-ups and activity at Indian crypto exchanges. Reckless? Or are investors onto something?
When strangers start offering stock tips, went the old saying, it is time to exit a frothy market. With Bitcoin punts, online advice could soon be at that point in India, as a crypto frenzy fed by federal easing of fiat money plays out globally, and bets on its value are confidently spoken of as one-way wagers. Yet, this cryptocurrency is not just another item on a ticker tape of crawling scrip prices, and, froth or not, it also appears to hold appeal among real investors, those who weigh risk against expected return. The local risk of owning Bitcoin was raised by a recent legislative proposal of the government to ban private cryptocurrency. News of clamps in the works broke just before our budget of 1 February. But Indian crypto exchanges have reported a surge of sign-ups since then. CoinSwitch Kuber, a crypto-only platform launched last year that claims 3 million users, said it saw both users and trades rise rapidly this month. WazirX, a crypto exchange with 1.5 million claimed users, reported five times as many new users in February than January. Others platforms saw upshifts too. This is remarkable.
Greed for a fast buck could be a big motive out there, and that would presumably include the efficient kind that is said to work, clarify and cut through markets, as extolled in Oliver Stone’s Wall Street (1987). Bitcoin has shot up 60% this month so far, and achieved $1 trillion in global market value on Friday. Such quick gains off speculation can be heady. Already at a dizzying $55,000 apiece, many reckon it can still go higher by virtue of its growing fame and pre-set scarcity amid asset inflation around the world. Over 88.7% of its 21 million tokens have been mined, and its adoption has zoomed. Its use has the approval of MasterCard, PayPal, Apple and BNY Mellon. A fortnight ago, it got the endorsement of Tesla, too, which declared it had parked $1.5 billion in Bitcoin, perhaps as a kind of reserve, and said it would accept this crypto as payment for its cars. If a taxman’s nod was missing, it got that when Miami’s mayor said local tax could be paid in it. Adding a dash of intrigue, Twitter chief Jack Dorsey and American rapper Jay-Z said they have Bit-funded an endowment for its “development". All this highlights the upside of a punt on Bitcoin. But with the Centre ready to curb or outlaw cryptos, it still sounds reckless.
Perhaps a large fraction of crypto holders in India do not expect an outright ban. If the Centre does enact one, some may have calculated that they would be given a few weeks to unwind their holdings, and even if taxes or a penalty must be paid, they can sell off just in time and book profits. Another wager seems to be that crypto ownership is easy to hide, given the dark web’s existence, and so restrictions would be hard to effect. Even technically, it is unclear if online tokens can be jammed without collateral damage to their underlying technology, blockchain, which has worthy uses in various fields. The ‘crypto’ part also explains why they are seen as a place to stash money away. Recall how Bitcoin was held up as ‘digital gold’ in the aftermath of demonetization back in 2016. To the extent that our purchases of it involve rupee conversion into global e-money, it can willy-nilly serve as a vehicle of capital flight. So, yes, Indian authorities do have good reason to be wary of cryptocurrency. But its complexities are such that a crackdown would be a clumsy response.