Crypto Revival On Cards In 2022?

Everything that could go wrong pretty much has in the crypto space this year. The crash in cryptocurrency values was unexpected, but here we are. At the time of writing, Bitcoin seems to be making a recovery, standing at just below the USD 25,000 mark and Ethereum is a touch above USD 1,800.

After peaking at above USD 60,000 last year in November while the value of gold was sliding in the markets, bitcoin and cryptocurrency – at large – received attention like never before. Six months later, the value of bitcoin plummeted and went below USD 18,000 briefly, reminding everyone about the volatile nature of crypto.

"Bitcoin crossing USD 65K was a monumental feat for the whole ecosystem. It illustrated the confidence that investors have in bitcoin and the potential of the asset in building wealth for investors. The analysts were brimming with enough confidence to predict bitcoin at USD 100K, but then we were faced with multiple global events that led to uncertainties and then a prolonged bear cycle," said Rajagopal Menon, Vice President, WazirX.

As the Ukraine-Russia war bore heavily on the international markets, supply chains across the globe were pressed. But crypto market seemed to be holding on its own by April. The dip came in mid-May and snowballed into a huge crash with a string of events affecting investor sentiments, including the collapse of stablecoin Terra, liquidation of hedge fund Three Arrows Capital, troubles associated with Celsius, and Vauld pausing withdrawals. This has also affected crypto miners leading them to sell their hardware. And unfortunately, some crypto platforms have also been shut down due to the crisis at hand. Moreover, NFTs worth USD 40 billion became virtually worthless with the collapse of the Terra blockchain ecosystem.

More recently, crypto behemoth Coinbase has posted an unexpected quarterly loss as investors stayed away from trading in crypto due to the worries around risky assets. In fact, the trading volumes for Coinbase have more than halved to USD 217 billion in the second quarter, with retail participation decreasing 68 per cent and institutional trading dipping 46 per cent.

But what about other crypto platforms? How are they coping? "Despite the harsh reactions of the market, we as an organisation ensured we reached out to our entire investor base through various channels. Our take was and continues to be plain and simple: Time spent in the market is always greater than trying to time the market," said Edul Patel, CEO and co-founder Mudrex.

"Since Mudrex is a global crypto investing platform, most of our investors are retailers aiming for long-term goals, so there were no significant changes. Rather, we have witnessed a nearly 40 per cent jump in month-on-month investing users on our platform," he added.

In India, there has been some action in the virtual digital assets space, too, as the government decided to levy 1 per cent TDS and a 30 per cent tax on virtual digital assets. "Our Trader Sentiment Survey shows that these tax implications have affected 83 per cent of crypto investors adversely," said Rajagopal Menon.

But the crypto industry at large has relatively done better in India. "The crypto market in India is indeed better off than its global counterparts and this is mostly because we have been particular with adhering to the law, establishing best-in-class governance practices and bringing transparency to the end user. In addition, as a crypto exchange, our services have offered a platform that does not work on leveraging high risk and rather focuses on securing a user's investment. The situation abroad has been created due to investors opting for higher returns that also entail much higher risk and staking their crypto as collateral with crypto lending companies. So far, such companies haven't gathered steam in India," reasoned Menon.

Truth be said, India has traditionally been on the safer side in case of economic crises. "For example, the 2008 subprime crisis or the recent pandemic linked bankruptcies. It can be attributed to the fact that India has strategically stayed away from overleveraging. This strategic step stems from our ingrained notion of saving first and spending later, as the bankruptcies have occurred in other countries and not in India. That effect is not seen here to a great extent," explained Edul Patel.

The Fall In NFT Sales

While NFT sales volumes have dipped significantly this year after a huge uptick earlier, the second quarter of 2022 registered a total of 9,50,000 addresses that transacted with NFTs, a significant increase from the 6,27,000 addresses in the last quarter of the previous year.

"The number of participants in the sale of NFTs has charted a steady quarterly growth from Q2 of 2020. Central and South Asian countries have recorded the highest levels of web traffic on popular NFT platforms," said Abhay Aggarwal, founder and CEO, Colexian.

Industry experts opine that NFTs could find their true value with the growth of metaverse in the near future.

"There have also been instances of awesome NFT projects acquiring funding to accelerate their operations and marketing. If this can happen during crypto winter, there is no bigger proof needed that NFTs are here to grow and they will play a major role in reviving the blockchain space," informed Ramkumar Subramaniam, CEO and co-founder, GuardianLink.

Crypto Forecast 

Considering that crypto has been around for just over a decade, innovation has been aplenty in the space. With time, the crypto ecosystem is bound to attract more institutional money and involvement. This will also improve the market depth and help ameliorate volatility. Naturally, regulations will also play a greater role in formalising the industry.

"The regulations levied in India have been baby steps toward institutional participation in the crypto exchange, whereas globally, the conversation around crypto has tried to answer more nuanced questions about cryptos' categorization as a Security vs. a Commodity. The SEC Chairman, Gary Gensler, has gone on record to say that 'only Bitcoin is a commodity, every other crypto is a security.' There is a need for such discourses in India, along with a sensible taxation policy," said Rajagopal Menon.

There also had been some murmurs internationally predicting BTC to duck under USD 15,000, but for now, it looks unlikely as crypto markets start to gather steam. "We have never thought of BTC reaching USD 68,000 in 2021, but it did. We did not expect BTC to fall to USD 19,000 after hitting its all-time high, but it did. It is pretty challenging to predict the market as it depends on various external factors such as demand, supply, regulation, macroeconomic situations and many more," said Mudrex CEO Edul Patel.

Volatility continues to be the very nature of crypto, and while it's hard to predict what's ahead, the second half of 2022 could largely be a consolidation phase for the entire ecosystem as it comes under scrutiny more and more.

"The crypto winter has unfortunately extended into the summer, but by the end of 2022, the downturn is expected to be reversed," said Colexion CEO Abhay Aggarwal.

According to WazirX VP Rajagopal Menon, the crypto space can expect a revival in prices as investor sentiment exits the 'fear zone' in the second half of 2022.