The story of Sam Bankman-Fried, the wonder kid of cryptocurrency world and former CEO of bankrupt FTX exchange, sounds like a movie plot. From an estimated net worth of more than $26 billion, collapse of the FTX exchange had led to Bankman-Fried’s net worth touching near zero now. Such wealth destruction in the technology world was unheard of. Even the dotcom bubble had not seen such wealth destruction.
Such a sharp fall from grace reflects the unpredictability of cryptocurrency ecosystem. Though global equity markets have seen massive falls on various occasions, those were not even closer to the current plunge witnessed in the crypto market. The price of bitcoin – the most popular cryptocurrency in the world – has fallen to around $16,000 now from a record high of $69,000 in November 2021. The drop in other crypto currency prices is a way deeper. The FTX exchange crash has wiped out almost $2 billion in investor cash, affecting high profile celebrities, pension funds and other investors. Notably, Canadian Ontario Teachers’ Pension Plan fund is likely to lose about $95 million due to the crash. Noted venture capital fund Sequoia Capital announced that it was assuming its total $200 million investment as worthless now. Such crash further exposed the fault lines in the global cryptocurrency ecosystem.
Unbridled ambition, reckless risk-taking and lack of proper regulations have now forced the ecosystem to come to a sorry state of affairs. Millions of investors are losing money each day not only due to price plunge, but also shady actions of crypto world are leading to more pain for participants. In this perspective, questions are being raised over the very existence of these digital assets. India, like many other nations, is yet to make up its mind on regulations. Finance Minister is calling for standard operating procedures for such asset class across geographies. The Reserve Bank of India is vehemently opposed to the idea of such digital currency as it treats them as threats to financial stability. In hindsight, it seems the actions and inactions of Indian authorities have saved millions of retail investors from losing their hard-earned money. Given the uncertain environment and taxation rules, volumes have dried up in Indian cryptocurrency exchanges. There seems to be no hope till the global sentiment revives.
As the world struggles to cope with an impending slowdown, crypto as an asset class is likely to go through more pain in times to come. Till a global consensus arises over regulations, these digital assets will be prone to such upheavals. Investors, therefore, are expected to sit on side lines till the sky becomes clear. Meanwhile, India’s Presidentship of G-20 nations grouping has raised hopes as India is pitching for global norms. If that happens, and G-20 with International Monetary Fund (IMF) can come up with a global regulatory framework, this asset class can emerge as an alternative in coming years. Till that happens, the road for cryptocurrencies seems to be bumpy. Hopefully, retail investors, who have already put money in this asset class, shouldn’t lose their money during this period.