If 2021 has been a spectacular year for major cryptocurrencies such as Bitcoin and Ethereum as they hit new all-time highs of $68,789 and $4444.53 respectively, 2022 will be an extremely difficult year for them. Both currencies are down more than 60% from their highs hit a year ago. It’s not just the story of these two cryptocurrencies, other coins such as Dogecoin, Avalanche and Solana also fell sharply. The market capitalization of cryptocurrencies has fallen to $810 billion from $2.18 trillion a year ago.
How the password got there
Although experts attribute the plunge in the price of major currencies such as Bitcoin to a variety of factors such as rising inflation, interest rates and economic uncertainty, these factors have prompted investors to sell risky assets throughout the year, including Terra LUNA and Celsius, the main factor is the FTX exchange. bankruptcy.
In November 2022, when the FTX exchange declared bankruptcy and Samuel Bankman-Fried (aka SBF) resigned as FTX CEO, the price of Bitcoin fell from over $20,000 to under $16,000 in a matter of days. The second-largest cryptocurrency saw a similar drop, falling from above $1,600 to below $1,200 as events unfolded.
The fiasco affected investors across the globe. The same is true in India, where an estimated 3-5 lakh Indians have lost their money due to exposure to FTX transactions. “This year will be etched in the memories of crypto users long after a series of unprecedented events shattered investor confidence, caused many longtime believers to question principles, and adversely affected users. Centralized exchanges have always been One of the memories of cryptocurrency users. Rajagopal Menon, vice president of WazirX, said: “The FTX crash may make users question the credibility of the exchange because it is one of the largest platforms that support cryptocurrency purchases. “
The good news is that following the FTX debacle, Indian cryptocurrency exchanges have taken some steps to protect their investors. ZebPay Chief Operating Officer Raj Karkara said: “As an immediate response to the FTX incident, FTT tokens have been delisted from ZebPay and remaining FTT member balances are automatically converted to fiat currency to prevent further fallout from the fallout. “We only work with the platform over-collateralized and secure our members’ assets”
Ashish Singhal, co-founder of Coinswitch, said: “Since India does not have a clearly defined regulatory framework for cryptocurrencies, we want regulated financial institutions and others to study their best practices and standards and try to replicate them on CoinSwitch.”
Menon added, “Since the bear market hit this year, we’ve been working hard to keep our users informed about the different aspects of trading in the ecosystem. We’re also working on releasing our Proof of Reserves to keep our users’ funds safe”
survival problem
Chaos is everywhere, and the question on everyone’s lips is: what will 2023 hold for the cryptocurrency market? Will cryptocurrencies survive? “The current situation is a mixture of worry and uncertainty about the future of cryptocurrencies. The market has a lot of trust from investors, which can be seen in the liquidity. Web3 games and utility NFTs are trying to revive the market,” said Amanjot Malhotra , Country Head of Bitay India.
According to Karkara, the recovery in the crypto market has been stronger, with most coins posting big gains. “Since 2009, there have been four instances of significant Bitcoin price corrections from highs. Each bear market phase was followed by a bull market. Furthermore, the data shows that while Bitcoin prices have been falling since early 2009 until 2022, nearly 60% of bitcoins in circulation haven’t moved in a year. This shows that trust is still strong,” he further added.
Agree with Singhal, “Cryptocurrencies are here to stay. Aside from sentiment, chatter during the current bear market phase, but it also means the noise is low and the focus is on innovation. From a retail standpoint, new consumers entering the ecosystem It has slowed, but those who entered knew all the risks and were better able to deal with the volatility. The potential of cryptocurrency and its underlying technology is enormous. Realization is increasing, just like its utility in the real world.”
What about the regulations?
The FTX confusion has prompted calls for greater regulation of the cryptocurrency market to protect investors. In the absence of regulation, there appears to be no financial protection for customers holding crypto assets on exchanges. But the exchange is promising.
“The industry is steadily moving towards global regulation. Country-specific laws are being drafted to protect investors from market uncertainty, remove security risks, and prevent any impact on the monetary system as the crypto industry goes through tough times ,” Menon said.
“2023 will be a stepping stone to regulated cryptocurrencies and the beginning of a new era as we move toward mature teams, projects and investors making smart bets on the future of cryptocurrencies,” Malhotra said.
According to Karkara, the current tax norms are a good starting point for the Indian government, and if TDS and capital gains taxes are further reduced and brought on par with other securities such as stocks and bonds, the industry will prosper more.
Where is the price headed?
According to experts, the true contagion effects of the FTX fiasco will continue to play out in the coming months “Overall, the cryptocurrency market should move sideways during 2023, with a downward trend due to the recent dent in institutional trust in the system. However, there are several coin-specific events that could trigger an increase in the price of individual coins. In the case of Bitcoin, any favorable regulations and major adoption by companies or countries before the 2024 halving event could lead to Price increases. For ethereum, Shanghai’s upgrade by the end of 2023 could be a positive trigger,” said Path Chaturvedi, head of crypto ecosystem at Coinswitch.
Investor’s Staggered Approach
While the bear market has many investors rethinking their future crypto investments, Bitcoin’s proponents haven’t stopped believing in its bullish future. But they require investors to make informed decisions. “The crypto space is dynamic and changes are happening fast. However, cryptocurrencies with strong fundamentals are here to stay and will continue to grow in the future. Investors should make sure to choose their investment partners after thorough due diligence.” Kakara Say.
Singhal advises investors not to bow to peer pressure. “Everyone should understand their risk appetite and plan their portfolio accordingly. Users should also explore investment schemes such as SIPs, which allow them to set aside a fixed amount in cryptocurrency on a regular basis. Only invest the amount you can afford to lose .The same rules apply to cryptocurrencies. Please consult a qualified advisor before doing any of this.
