At a time when the conflict in Ukraine has been going on for a very long time and the specter of inflation brought on by the high price of crude oil has became a global problem, crypto currencies are also falling into a bad zone for the rest of the world.
Investors have taken a blow as a result of the global cryptocurrency market's loss of roughly $830 billion in over six weeks, which came at a time when stock markets throughout the globe are experiencing dramatic ups and downs.
On May 16, the worldwide market capitalisation (m-cap) of cryptocurrencies was $1.27 trillion , down from less than half of the $2.83 trillion it had reached in November of previous year. Bitcoin, the most costly cryptocurrency, had a price per coin of $29,504.9 (about Rs 23 lakh), which was down significantly from its November value of $64,862 (approximately Rs 50.5 lakh). The sudden failure of the "Stabblecoin" (code name UST) in the second week of May was responsible for the large decline.
As a result, the market capitalization of the cryptocurrency fell by 63 percent to $6.16 billion (Rs 47,934 crore) from a month earlier. Stablecoins like TerraUSD generate new coins or destroy old coins using complex code. So that the price stayed the same, but as soon as the major investors got out of it, it dropped below $1, and then on May 11 it dropped even more to $0.30. Its future currency, Terra (Luna), has similarly seen a severe decline and has absorbed the majority of the wealth that was formerly held by investors.
On May 13, the cryptocurrency exchanges in India delisted Terra (Luna) from trade after the price of the cryptocurrency plummeted below zero. This decrease in the value of crypto currencies could not have occurred at a more inopportune moment for investors in India. This consistent decrease in the value of the cryptocurrency has left millions of investors, who were already bemoaning their losses before the Union Budget in February slapped a tax of 30% on cryptocurrencies. An extensive number of Indians, maybe as many as 15.2 million Indians, have reportedly invested about $6 billion (Rs 46,695 crore) in crypto currencies on digital platforms as of November of the previous year, according to estimates provided by the sector.
The precipitous fall in cryptocurrency value may be easily explained by a number of factors. Share prices on stock exchanges are backed by the underlying assets and income of listed firms, while cryptocurrency prices do not have access to such a resource. More than 7,000 different cryptocurrencies are already being traded, but the actual number of coins in circulation is likely to be significantly greater. Because cryptocurrencies are unmanaged and decentralized, anybody with understanding of their underlying technology may establish a cryptocurrency. Crypto currencies are incredibly impotent in the face of the ups and downs of the financial world since there is little backing for tangible assets in the crypto currency system.
The unpredictability of the situation generated by Russia's invasion of Ukraine has delivered a major blow to global financial markets and prompted a dramatic decline in global stock markets, with the price of crude oil (Brent) hovering around $110. At the same time, supply difficulties brought on by the war sparked the fire of inflation, which forced the US Federal Reserve to raise interest rates by 50 basis points (bps) earlier this month. Inflation in India crossed the upper limit of 6 percent set by the Reserve Bank of India for the fourth month in a row, reaching 7.79 percent in April. Inflation in China crossed the upper limit of 6 percent set by the People's Bank of China for the third month in a row, reaching 6.8 percent in April. On May 4, the Reserve Bank of India (RBI) implemented its first rate rise since the epidemic by increasing the repo rate by 40 base points.
During the first stages of this severe drop, heavy-duty stimulus efforts all over the globe caused investments in crypto currencies to skyrocket, which led to a quick surge in investment activity. Just in the first two months of the epidemic, a total of $10 trillion in additional stimulus was injected into economies all around the world.
The co-founder and current CEO of U Trade Solutions, Kunal Nandwani, said that "a portion of the incentives flowed to investable assets like bitcoin, stock markets, real estate, and start-ups." A sudden crisis in liquidity has arisen as a result of banks in various economies increasing interest rates and purchasing bonds, which results in a withdrawal of cash from those economies.
Fearful investors started selling their holdings, including their cryptocurrency, which increased the likelihood that the present crisis would worsen shortly. Others have pulled out of their investments entirely, although for the time being they are not contributing any further funds.
Anand Mahesh, an advertising professional located in new Delhi, has spent a total of Rs 2 lakh in several cryptocurrencies, including Ethereum, Polcadot, Solana, and Dojicoin, among others. He explains, "I have chosen not to provide the portfolio that I already own. I'm not in a rush to withdraw money since I'm treating it as an investment with some level of risk. It goes in cycles. Bitcoin also had a slump previously, but it has now made a comeback. Investors continue to find crypto appealing due to its liquid nature, which allows them to get their money quickly after selling their holdings.
According to Nandvani, "These may fall much farther dramatically, and there may not be any rebound at all." It may sound extremely harsh, but it will take a very long time for people to become excited about crypto currencies again. He thinks that the future of cryptocurrency "may be a gloomy one," and he adds that retail directors who have had their fingers burned may quit their portfolios permanently.
Still Indians are attracted towards crypto as the maximum number of crypto investors are in India which is crossing 10 crores mark and in future they will surely incrase, the tax on crypto initially create a negative sentiment about the cryptocurrencies but the main technology behind crypto is going to survive becasue Blockchain is not only creating an impact on financial sector but also in other sector like health and agirculture and Blockchain can also having potential to change the voting system. Let's hope investors gain profit and the virtual currency will survive as Metaverse is creating hope for the cryptocurrencies and NFT is gaining popularity in India.
