Two weeks ago, the embattled crypto exchange FTX initiated bankruptcy proceedings in the US while its Chief Executive, Sam Bankman-Fried resigned. The collapse was zeroed in on large-scale, alleged irregularities which included suspicious transfers to the tune of $515 million and customer deposits being wrongly used to purchase and inflate the cryptocurrency owned and issued by the company — the FTT token. Filing for bankruptcy wiped out upwards of $32 billion of value, which FTX had during its last round of funding.
The FTX crash is no isolated incident. Other crypto companies including Celsius Network, Three Arrows as well as Voyager have shut shop, leaving investors drained of billions. A few years ago, a Canadian exchange Quadrigacx folded up. The founder of a crypto scam emerging from Bulgaria named OneCoin had gone off the radar, followed by Hyper Fund and the German fintech firm Wirecard going AWOL.
The price of Bitcoin has also dropped by a staggering 75% over the past one year. Crypto evangelists had once touted Bitcoin to be more valuable than gold, US dollars, fiat currency or precious metals. The trend is seen across various cryptocurrencies, some of which have plummeted by close to 80-90% in one year, while others have simply vanished.
What this spells for the industry is bad news. Following the US and Turkey, India has the third highest number of registered downloads of crypto exchange apps, as per a working research paper published in the Bank for International Settlements. As of June 2022, India recorded as many as 30 mn crypto exchange app downloads. Owing to a vast population and awareness of crypto being limited to urban regions, India is among nations with the lowest downloads per capita, trailing behind nations such as the US, Canada, Australia and the UK. India is also among nations with the lowest average monthly app usage — 150 per 1 lakh people.
Experts point out that over 73% of individuals who had invested in cryptocurrency have lost their investments. New smaller investors bought Bitcoin as prices rose, and most were drawn by the surge in prices as opposed to crypto’s reputation as a ‘safe bet’, and due to their dislike for traditional financial institutions like banks. The biggest criticisms surrounding crypto also emerge from here. In every trading exchange, an individual needs to pay up when the investor wants to pull out his or her money back. In crypto exchanges, this otherwise glitch-free process does not occur with the frequency that would qualify them as exchanges in the true sense.
In India, the Centre is mulling a digital rupee while seeking to push for a decision of regulating crypto during the G20 presidency. The other option is to ban it altogether, as has been suggested by the RBI, considering it has no underlying asset to back it. Tax evasion and money laundering via crypto is also a cause for concern. Regulatory agencies and government bodies are yet to agree on a game plan especially after the US treasury secretary called for a combined effort to regulate such platforms globally, while reducing the cost of cross border payments.
The US might not back a ban as crypto will push for dollarisation of the global economy. A ban can be circumvented, as there are no foolproof mechanisms to counter it. It is safe to say that the jury is still out on the fate of cryptocurrency in the days to come. But, the big party, as far as the nebulous ‘asset class’ is concerned, might just have come to an end.