Prominent crypto proponents say cryptocurrencies might be the future of money. Crypto supporters see crypto as multiple things – a perfect hedge against inflation, a way to make cheap and fast international payments without the need of an intermediary, and even as a digital alternative to gold. But, the recent global market downturn has brought the future of Cryptocurrency into question. Crypto critics point to the fact that the crypto market is far from being a hedge against inflation and has performed poorly in the face of record rates of inflation.
However, despite market volatility, Cryptocurrencies have continued to experience strong growth over recent years, as investors have become more comfortable with digital assets and blockchain technology. So, what is the future of Cryptocurrencies in India? Is it still a good time to invest in crypto? What is the Indian government’s view on cryptocurrency? Keep reading to find out!
Cryptocurrencies are digital assets or currencies that function without a governing body. What exactly does that mean?
Well, for fiat currencies like the Indian Rupee, the Reserve Bank Of India (RBI) is the governing body. The RBI is responsible for the issuance of new notes and coins as well as the maintenance of records. They also have the power to regulate the money supply in circulation in order to control inflation. However, with cryptocurrencies, there is no centralised controlling body – it relies on a decentralised network of computers that work together to validate transactions, known as ‘nodes’.
The most well-known and largest market cap cryptocurrency is Bitcoin, created in 2009 by a pseudonymous person or group of persons known as Satoshi Nakamoto. Bitcoin is often referred to as ‘digital gold’ due to its limited supply of 21 million coins and its increasing popularity as a store of value. Other popular cryptocurrencies include Ethereum, Solana, Tether, and Avalanche.
Some like Ethereum offer advanced and more innovative uses allowing applications to be built on top of the native network.
Cryptocurrencies have had a significant moment these past few years. With COVID-19 increasing digitization and governments pushing economic stimulus across the globe – the crypto market exploded. The market cap grew from $200 billion in January 2020 to reach a peak of $3 trillion in November 2021.
The Indian Government has also been cautious in its approach to regulating cryptocurrencies. The RBI has issued several warnings against investing in cryptocurrencies, cautioning users of the risks associated with them.
And while the government recently decided to lay out taxation schemes for cryptocurrencies, there has not been any clear communication regarding additional policies or regulations. This uncertainty has led Indian crypto startups such as Wazirx and Polygon to start operating from overseas.
Despite the reluctance of the Indian government to support crypto, it still sees digital currencies as innovative, as evidenced by the fact that the RBI hopes to launch its own digital rupee by FY 2023. This digital rupee will use the same underlying blockchain technology as other cryptocurrencies but will be backed and controlled by the RBI.
Since many people conduct transactions with crypto, one could say this means crypto can function as a form of money. But, it is still far from universal adoption. It is considered risky, and most crypto users themselves use crypto as an investment, not as a form of money.
To be seen as the ‘new money’, crypto would have to see larger-scale adoption and acceptance as legal tender.
Cryptocurrencies are a high-risk investment, prices can fluctuate wildly, and the risks associated with investing in digital assets are not fully understood. That said, cryptocurrency could become more widely accepted in the future, and investors willing to take on the risk may be rewarded.
The crypto market showed extraordinary growth in the past few years but remains highly volatile. In addition, the taxation on crypto is 30% income derived from price gains without being able to offset losses. Deciding whether to invest is based on your personal tolerance to these points.
If you decide to do so, it’s essential to keep certain things in mind:
– Diversify your portfolio by investing in different coins and projects
– Do your own research before investing in any project
– Keep track of market conditions and regulations
Some people seem to think crypto could be the future of money. With people spending more time online and in virtual spaces, the digital economy will continue to grow exponentially. People turned to crypto to purchase assets as NFTs, purchase decentralised financial derivatives, and other digital services.
There are several reasons why cryptocurrency could eventually become mainstream:
According to the Atlantic Council, 105 governments worldwide are exploring launching their own Central Bank Digital Currencies (CBDCs) – digital tokens similar to cryptocurrencies. These digital currencies that central banks control could be the cornerstone of the future financial system.
But what remains to be seen is how exactly Governments across the globe will approach and regulate cryptocurrencies and what impact this will have on their growth.
While crypto has suffered some setbacks recently – the market capitalisation has fallen from its peak of $3 trillion in November 2021 to $996 billion (as of June 2022) – it’s an incredible ecosystem filled with exciting innovations and developments. We can expect to see more innovation and adoption in the coming years, which will drive market growth across the world, including India. In other words, the future of Crypto is not as dim as critics think!
Ans: To obtain or invest in cryptocurrencies, you can either:
– Buy and sell them on exchanges where you can use fiat currencies like INR to purchase digital assets
– You can also purchase crypto directly from other individuals through peer-to-peer platforms
– Additional, crypto can be obtained as a reward for verifying transactions on the blockchain
Ans: While crypto hasn’t reached complete acceptance as a currency, you can purchase anything with crypto. It has many uses like:
– Make international transactions
– Purchase digital services
– Buy and sell digital tokens such as NFTs
– Use as collateral for loans
Ans: A Deutsche Bank report predicted that the number of cryptocurrency users will grow 4 times in the next ten years.
More governments worldwide will launch CBDCs – digital currencies backed and regulated by their central banks.
Ans: Cryptocurrencies operate in a legal grey zone, meaning they are neither illegal nor legal. Still, buying and selling crypto will attract taxation. As per the Union Budget 2022-2023, the Finance Minister of India, Nirmala Sitharaman, announced that individuals will now have to pay a 30% tax on any income from digital assets, such as cryptocurrencies. This will also include a 1% TDS.
Ans: Here are a few Crypto trends to keep an eye on:
– Decentralised finance – DeFi is a rapidly growing area of the cryptocurrency market; DeFi uses blockchain technology and cryptocurrencies to build financial tech and applications.
– NFTs – Non-fungible tokens (NFTs) are unique digital assets that cannot be interchanged. They have been gaining popularity in recent months, with major platforms like Opensea leading the way. In 2022, we can expect to see more businesses experiment with NFTs and for the market to grow exponentially.
– Stablecoins – Stablecoins are digital assets pegged to a fiat currency or assets, such as the US Dollar or gold. They offer stability in an otherwise volatile market and are often used for trading or payments.
– Bitcoin ETFs – A Bitcoin ETF is a type of investment fund that tracks the price of Bitcoin and can be traded on traditional stock exchanges.
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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