It looks like there is indeed a lot of money sloshing all around the world. The unprecedented rise in equity, gold and cryptocurrency are all pointers to this very fact. Usually, when there is so much uncertainty, its usually the US dollar and gold which attract all money but this time around, there is so much liquidity in the system that despite not knowing the situation ahead, people – retail, institutions HNIs all over the world are putting money in highly speculative instruments. With the world literally awash with fiscal and monetary stimulus, all the money is finding its way into such instruments.
Bitcoin, the world’s largest cryptocurrency in one month has more than doubled and this week, it climbed well over $40,000 for the first time ever. Yesterday, its market value rose over $1 trillion – another first time ever occurrence.
Those putting money in bitcoin argue that this digital currency is like gold, a hedge against inflation and will protect their money when dollar and value of other currencies erode. This reason apart, to some extent, JP Morgan Chase is also said to be fueling this run as they have called out for a price target of $146,000 for Bitcoin, meaning there is a long run ahead.
But this is a dangerous instrument as one cannot help but question the basic integrity of crypto currencies. Less than 2% hold 95% of the Bitcoin supply – isn’t that in itself a warning sign?
In India too many are flocking to bitcoins, especially the younger earners, with money in their hands and looking for avenues to get rich fast. In India, Unocoin is the cryptocurrency exchange and they say that in the last six months alone, they have added on over 70,000 new users.
RBI has barred banks and financial institutions from trading in cryptocurrencies but the Supreme Court in March’20, squashed this ruling of RBI and banks have started to trade in these once again. HDFC Bank, SBi, Kotak Bank and ICICI Bank – all allow their customers to trade in cryptocurrency using their bank accounts.
For most of us beginners, a quick revision on what bitcoin is. Created in 2009, it is a new currency, known as cryptocurrency and is run on blockchain technology which has become the norm for banks world over. It was created by an unknown person who went by the alias of Satoshi Nakamo. Using bitcoin means there are no banks and no need to give real names – you can buy and sell, like the way we use cash with bitcoin. It is preferred mainly due to its anonymity and even internationally, it can be used to trade as it is not tied to any country’s rules or regulations. You can buy the bitcoins only from exchanges dedicated for bitcoins. It is a virtual money where the bitcoin is held in digital wallets, either on the cloud or on the user’s device; it is like a virtual bank account – it is used to send or receive bitcoins, pay for goods or save their money.
It is the anonymity which is worrisome, especially in this age of extremism and terrorism. When you own a bitcoin, though you use a public domain, your identity is not known – only your digital wallet ID is your identity. It is almost impossible to trace the buyer or seller and the main reason why it is the gaining popularity for buying illegal drugs and fund illicit activities.
There are currently no laws governing them and it is highly unregulated. The way taxation policies work on bitcoin is also in the dark but there is talk of Central Board of Indirect Taxes & Custom (CBIC) considering imposing an 18% GST on Bitcoin trading margins. The Central Economic Intelligence Bureau (CEIB) has called for cryptos to be regarded as an intangible asset class and be treated as current assets for GST purposes.
Call us conservative or old-fashioned but we do not recommend putting money in this highly speculative instrument, which is ruled neither by fundamentals nor technicals. Let’s see where this new technology takes mankind.