Bitcoin price quadruples amid pandemic year. Check how the cryptocurrency fared in 2020
NEW DELHI: In a year when currency valuation across the world has been in turmoil, the cryptocurrency industry has witnessed an unprecedented bull run. On the last day of 2020, the world's largest cryptocurrency -- Bitcoin -- surged past $29,000, quadrupling in value during the pandemic year.
The financial sector players have shown keenness in participating in the wave with industry experts pointing out that as an institutional investment in bitcoin gets bigger, the currency could see stronger support during price dips. Currently, Indians own about 1 per cent of bitcoin, a far smaller figure compared to ownership in China or even the US where nearly 25 per cent of Bitcoin nodes are located.
"In 2021, many more institutions will join in because they see bitcoin, not as a speculative asset but a long-term store of value and strategic reserve. Institutional investors will play a vital role if we are to close this Bitcoin Gap, as we call it,” said Vikram Rangala, CMO, ZebPay.
Both cryptocurrencies and gold are seen as a hedge to protect fiat portfolios due to their inflation-beating qualities. "While traditionally, investors used gold to hedge against stock volatility, now crypto is emerging as a mainstream investment class especially among millennials. In fact, the Bitcoin seems to be replicating the gold price rise,” said Nischal Shetty, chief executive officer of WazirX, India’s largest cryptocurrency exchange which has a huge millennial user base.
Cryptocurrency, as a medium of payment, needs neither a central issuing authority nor a central validating agency for transactions. These currencies exist and thrive outside the realm of regulation. Their price is determined by supply and demand in the market, which is also why they are at times far more volatile than any sovereign currency.
2021 could well be another roller-coaster year like 2017 when the coin saw a similar rally when its value surged sharply, only to crash the next year, says Sathvik Anand, Co-Founder, and CEO of Unocoin.
There are, however, persisting concerns on the future of cryptocurrencies. These coins, for instance, lack key qualities and basic attributes to be a proper currency. According to Pranay Sanghavi, co-founder of MahaDAO, these are Money is a store of value because of its high degree of volatility, money as a unit of account, and money as a medium of exchange. Besides, there is no sovereign guarantee to its value, which is what makes normal currencies tick.
Meanwhile, the meteoric rise of digital assets has caught the attention of the government and could face strict scrutiny going ahead. Recent reports suggest that the Central Economic Intelligence Bureau, an arm of the finance ministry is mulling imposition of GST of 18 per cent on cryptocurrency trading, in which case it could potentially gain Rs 7,500 crore annually on bitcoin trading.
But exchange executives have been quick to point out that they pay GST on fees and commissions levied by them on crypto trading. Besides, it is crucial to put in place the regulatory framework first before taxation is considered.
Start-ups such as Zebpay, Unocoin, WazirX, CoinSwitch, and CoinDCX have recorded significant growth in their business in the last six months ever since the ban was lifted.
For a common man to invest in cryptocurrency the technology behind bitcoin is indeed complicated but it's relatively easy to understand the problem it solves and that is where its value lies. “You can either explain to your granny how Skype works or directly hop on a skype call with her,” explained Ashish Singhal, CEO, and Co-founder of CoinSwitch.
While Bitcoin has given returns to investors that are unimaginable, one must also understand that the technology that powers it has the ability to disrupt a lot of existing industries and that makes Bitcoin a lucrative option, he added.
Rival cryptocurrencies such as Ethereum (a bigger performer than bitcoin this year), Ripple, and Litecoin are also catching up. “Ethereum is the second-biggest cryptocurrency in terms of market capitalization, and the growth in Ethereum is attributed to the shifting of its consensus mechanism from Proof of Work to Proof of Stake. Proof of Stake is the biggest upgrade for Ethereum, and it aims to make the network more scalable and efficient. All of these currencies may see a major uptrend in price from the first quarter of 2021,” said Sumit Gupta, CEO & co-founder of CoinDCX.
Experts also say that Ripple may soon see its demise at least in its current avatar while Litecoin is a worthy contender that is trying to find good use cases and utility.
As the crypto industry continues to edge towards maturity, a few start-ups are also working to create such a currency. MahaDAO, for instance, is working on launching the world’s first non-depreciating currency, what they call a valuable coin. India has also gone a step ahead to house the world’s first crypto bank with a physical branch. UNICAS, a joint venture between financial services companies Cahsaa and United Multistate Credit Cooperative Society, launched the world’s first physical branch of a cryptocurrency bank in Jaipur.
The newly launched crypto bank provides the same services as a traditional bank, including buying and selling of cryptocurrency assets and issuance of loans against digital assets. As many as 14 physical branches will be rolled out by January 2021 across the NCR, Rajasthan, and Gujarat, said UNICAS. It also plans to expand to 100 branches by the end of 2022.