Rate hike fears trigger crypto crash

Panic-driven Trading

- Heavy offloading in cryptocurrencies

- Cryptocurrencies are like equities as value goes up and down depending upon trading dynamics

- Crypto exchanges look to regulatory support to ensure investor protection

- Digital Rupee different from cryptocurrency

- INR 1 will always be Rs1 only

We hope the upcoming Union Budget will bring in regulatory clarity and help standardize best practices, address misconceptions around this emerging asset class, says Sharan Nair, Chief Business Officer, CoinSwitch

Mumbai: Cryptocurrencies lost a whopping $1 trillion in market capitalization globally since November last year, sending crypto investors into a tizzy. What's the reason for the freefall? Experts that Bizz Buzz spoke to, blamed the speculation that the US Federal Reserve in its meeting scheduled for today (January 25) would go for interest rate hike, for the turmoil in crypto markets.

Talking to Bizz Buzz, Ashish Singhal, founder and CEO, CoinSwitch says: "The market meltdown is primarily attributed to the US Federal Reserve's plan to hike interest rates this year to rein in rising inflation. Like any asset, macroeconomic factors affect the crypto too. Investors must keep in mind that risk and reward go hand in hand and that they need to do their own research before buying into any asset - not just crypto."

We perform due diligence on coins that we list on our platform and have built-in new features to warn users of the risks involved. We continue to work on making crypto a safer asset to invest in, he added.

Meanwhile, the stakeholders are expecting that the forthcoming Union Budget will bring in regulatory clarity and help standardize best practices in India.

Various macroeconomic developments in India and the world over the last year have led to a rise in crypto adoption in India. Today, leading crypto exchanges follow strict self-regulatory practices to ensure customer protection.

Sharan Nair, Chief Business Officer, CoinSwitch, adds: "We hope the upcoming Union Budget will bring in regulatory clarity and help standardize best practices, address misconceptions around this emerging asset class. We believe a regulated environment will encourage more Indians to start their crypto investing journey, promoting financial inclusion in line with the government's vision."

In its bid to make the use of cryptocurrency as a legal tender, the government has approached BIS for assistance with cryptocurrency legislation.

"It is evident from correspondence that the administration is attempting to craft progressive legislation that entails engagement with numerous stakeholders; thus, I anticipate a timeline of at least 4-5 months," said Gaurav Mehta, founder, Catax, an online cryptocurrency tax software.

Commenting on what kind of regulation was needed to check the use of crypto in financing illegitimate activity, he said that regulation that prioritises consumer safety, while also fostering continued innovation in developing ecosystems is necessary at this point in time.

Cryptocurrency exchanges have matured to the point where they can fulfill needed government responsibilities.

Mehta doesn't think that a digital rupee will be a reply to crypto currencies. Explaining it, he said that on the one hand, the digital rupee is a CBDC or stable coin, which implies that 1 INR will always be 1 INR. On the other hand, cryptocurrency is similar to equities, whose value fluctuates according to market demand and supply. Comparison is superfluous.

He believes that crypto purchase, sale and trade transactions should be regulated at the exchange level.

Citing the reason behind it, Mehta said, "Exchanges are the optimal location for regulating cryptocurrency transactions and enforcing compliance. They are technologically sophisticated and capable of meeting regulatory requirements."