The world Financial Markets are going for a tailspin amid the current pandemic. Record lows have reached for stocks, exchange indices, commodity markets. Futures, options, etc.
With the fall in global demand and supply, disruption of global supply chains, and a global recession looming. it seems that financial markets cannot shake off the blues of the plague.
Yet one market is standing out amongst all others and has shown resurgence over the past few weeks- Cryptocurrencies. Read on to see how cryptocurrencies are becoming the refuge for investors around the world and in India.
Cryptocurrency has turned out to be the best performing asset of 2020. A sudden surge in the Price of Bitcoin has made cryptocurrencies outperform even gold silver and crude oil.
Over the past few months, the price of Bitcoin has risen by almost 33% while gold has risen by just around 13% and silver by 14%.
Crude oil has dropped by 70% and WTI prices have reached the negative territory and. Oil Futures for the month of April and May became negative and left the derivatives and commodities market in doldrums.
Stock markets have fallen drastically and several major stock exchange indices have registered continuous fall since their highs in the previous year.
In the midst of this turmoil, cryptocurrencies have served as a lucrative investment opportunity for returns. As evidenced by the sheer growth in Volume and price globally. Despite the fact that a major price crash in March 2020 wiped out almost $4000 dollars of its market value.
Bitcoin has seen a significant rise in returns since the past couple of months, right around the time when global lockdowns were Imposed to break the cycle of transmission of Covid-19.
In a volatile global environment, cryptocurrencies have served as safe-haven assets for investors to park their money and earn surplus returns.
Cryptocurrencies other than Bitcoin performed well too, with Etherium registering gains greater than 60% since the beginning of the year and has accelerated even more post the pandemic. In India, WazirX, the largest crypto exchange by volume has seen its daily volumes grow by over 470% in the past month.
While the total number of verified virtual currency users stands at 1.7 million in India. According to IAMAI, the global market size is pegged at $430 billion. CoinSwitch, a virtual currency aggregator has said that with the new conducive regulatory environment for trading in cryptocurrencies, the user base in India is expected to grow manifold in the coming months.
IMPETUS TO THE INDUSTRY
In a major ruling by Supreme Court in the history of Cryptocurrencies, The Indian Supreme Court ruled against the blanket ban on trading of Cryptocurrencies issued by the Reserve Bank of India (in April 2018).
Even before crypto-related banking transactions were banned, the cryptocurrency was quick to adapt and devise and implement different models of trading in crypto, like Peer 2 peer lending between users.
With this ban revocation, Cryptocurrencies finally became legal in India and this opened the doors for Cryptocurrency traders to trade and deposit/withdraw the proceeds in banks.
The Emergence of the Tech Savvy Market
With an emerging tech savvy market, adoption of cryptocurrency has been on the rise for quite some time. Even before the disease outbreak, many Indian Crypto Based Exchanges had already kick started their fiat services and this legal unshackling by the Supreme Court will further give a push to Cryptocurrency financing opportunities.
Blockchain, the underlying technology of Cryptocurrencies is also undergoing a rapid change and upgradation over the past couple of years. It is evolving from version 2.0 to 3.0, which provides enhanced interoperability, scalability, and security.
It can now be scaled to create real business value. According to a report by NASSCOM, over 70% of the projects implemented in 2019 will bring cost savings and achieve process efficiency for enterprises.
Banking and Financial Services is leading blockchain adoption in India and many more solutions are being implemented across major banks and insurance companies, whether for payments, settlements or for cross border transfers.
Also, days after the Supreme Court struck down the RBI curbs on Trading in Cryptocurrency markets. Global Exchange group Binance set up a $50 million blockchain technology fund in India to invest in emerging startups using Binance Coin, Binance USD and WRX Coins (all forms of Cryptocurrencies). Many other global cryptocurrencies have also been on boarded recently for trading in the Indian markets like MCO and CRO.
According to Binance, the next phase of mass adoption for crypto will arise from developing nations and India, with more than a billion people, is primed for this.
OTHER FACTORS – Banking and Financial Services
Cryptocurrency exchanges have managed to secure sizable funding and have been continuously on the rise in the past few years.
Venture Capital Funding for blockchain firms are on the rise, with rise in investment in Banking and Financial Services blockchain technologies. Seed Funding by venture capitalists for Coin exchanges in the past year goes on to show how much the industry is expected to pick up in the coming times.
Besides the rise in Cryptocurrency on account of the returns it fetches, there is also a fiscal and monetary angle to cryptocurrencies.
The Reserve Bank of India has infused several thousand crores of Liquidity into the market with Long term Repo Operations, Participating in the corporate Bond Market, providing a special liquidity window scheme for MSMEs, Micro Finance Institutions, NBFCs etc.
The Indian Government has proposed a fiscal stimulus of around 1.8 Lakh Crore over. The US Govt has passed a bill for $ 2 trillion fiscal package and the Federal Reserve has lent $ 4.25 trillion. All these are actions that stand to raise the level of money supply in the economy. With Increased monetary base and high powered money, there is a basis for the creation of more cryptocurrency assets.
The Facebook-Jio Deal
In addition, the Recent Facebook investment in Jio Infocomm could pave the way for the growth of cryptocurrencies in India driven by the former’s own digital currency Libra.
This presents an opportunity for both companies to tap into the digital payments market while also promoting blockchain innovation in India. The partnership provides opportunity for promotion of Libra for Whatsapp users as well as for E-commerce payments on Jio Mart and its online shopping platforms.
With the affirmative Supreme Court Judgement lifting the ban, more Indians will be able to systematically build wealth through trading and investing in cryptocurrencies.
Moreover, the opportunity to tap the unbanked 300 million masses of India has also opened up. It can create more jobs and recruit more talent for blockchain development, business analysts, and digital marketers as the adoption of cryptocurrencies increases. Wider participation could go a long way in reviving the economy.