• Shreya Sharma

CRYPTOCURRENCY AMID PANDEMIC


INTRODUCTION

In the 21stcentury the next breakthrough after the innovation of the internet was Cryptocurrency. One of the best-known cryptocurrencies is Bitcoin which was introduced in 2008 having a value of zero, and if we talk about the same in today’s time the value of the same Bitcoin is in lakhs of Indian Rupees.

Cryptocurrency Explained

Just like the currency of any other country, a Cryptocurrency is also a form of currency. It is not a physical currency but a digital currency. If we talk about India, Indian currency can only be used in India but it is not the same as Cryptocurrency, it can be used in any country as it is a globally accepted currency. The second advantage of such currency is that it is not regulated by any central authority or Government and there is no involvement of any middle man.

To start simply, Cryptocurrency does not have any physical form but is a computer file that is stored in a digital wallet. In exchange for money, cryptocurrency can be purchased. The biggest advantage of cryptocurrency is that it is used in the sale and purchase of goods and services. Cryptocurrency is also in limited supply because of which the demand is high. Unlike a bank transaction where bank details are easily available but it is not the case in Cryptocurrency, here no one can access the information regarding sender and receiver.

In recent years, there has been a rise in the value of cryptocurrency, this is because of the hype of the said currency. For example, Gold is valuable because it is limited. Just like Gold, there are close to about 18 million Bitcoins that have been extracted and only a total of 21 million Bitcoins can be extracted. Therefore, the main reason behind such an increase in value is because of the limited availability and supply. Just like the Theory of Law of Supply and Demand, when there is a high demand for a commodity but supply is less than automatically the price of that commodity increases it is similar in the case of Cryptocurrency. Warren Buffet in 2019 stated that Cryptocurrency is not just a virtual currency but a gambling instrument as people do not buy it as an alternative to real money but due to its increasing value.

Every Cryptocurrency is protected by a private key, this private key is similar to a UPI pin. If someone forgets their UPI pin they can go to the bank but in the case of Cryptocurrency it is not the same, if the owner of the cryptocurrency misplaces its private key then no one can use it. There are close to about 25% of cryptocurrencies that have been lost till now.

Cryptocurrency Mining

In mining usually, precious metal is searched, found and then mined. In Crypto Mining, it is a virtual process in which miners solve a complicated mathematical equation and if the equation is solved then they are rewarded with Bitcoins and this is how Cryptocurrency is generated.

STATUS OF CRYPTOCURRENCY IN INDIA: ARE CRYPTOCURRENCIES REGULATED IN INDIA?

At present, RBI is in a process of consultation with different ministries so that they introduce a framework that can ban Cryptocurrency trading in India. In 2018, RBI issued a notice to all the financial institutes so that they don’t use or support any form of digital currency as a lot of frauds were being executed mainly after demonetization in 2016. After this various Cryptocurrency Exchanges which are present in India filed a case to remove such a ban. After which in March 2020, Supreme Court removed the ban imposed by RBI along with all the restrictions which were present in India relating to Cryptocurrency have been removed. But Cryptocurrency is still unregulated in India.

In the Decision of IMAI v. RBI[1], the Supreme Court observed that

(i) while cryptocurrency hobbyists do not have the locus standi to challenge the 2018 Circular under Article 19(1)(g) of the Constitution, cryptocurrency traders and persons running cryptocurrency exchanges do have the locus standi;

(ii) cryptocurrency users and traders can access avenues other than cryptocurrency exchanges, but persons running cryptocurrency exchanges do not have any other means of sustenance; and

(iii) the RBI by denying access to banking and payments channels has effectively shut down cryptocurrency exchanges, even though there is no evidence that cryptocurrency exchanges have had any adverse impact on entities regulated by the RBI.

INTERNATIONAL REGULATIONS RELATING CRYPTOCURRENCY

On 22nd and 23rd February 2020, The G20 finance ministers and central bank governors had their first meeting in Saudi Arabia. where cryptocurrencies and stablecoins, and issued a statement urging countries to implement the cryptocurrency standards set by the Financial Action Task Force were discussed.[2] In the meeting, new reforms and more stabilized ways of governing the cryptocurrency along with other digital currencies were discussed. This conference was based on the G20 meeting which was held in Japan, 2019. Here, the committee also discussed regulations that will be implied during the Covid-19 as no one knew that it would grow into a worldwide pandemic.

The G20 summit compromising representatives from 19 countries and the European Union have prepared for the group to accept digital payments in the summit held in Japan in October of 2019. The changes were then expected to begin by G20 members before the summit which was held in Riyadh, Saudi Arabia in February of 2020. [3]

According to Kyodo News, the G20 officials enacted the policy change in response to China’s progress on creating a digital Yuan and Facebook’s anticipated release of Libra. G20 body in October 2019, summit published a study on the challenges that stablecoins pose to the global economy. The G20 finance members of the world agreed that global stablecoins gave rise to a set of public policy and regulatory risks.

Fun Fact: The first purchase that was made via Cryptocurrency was of Two Pizzas amounting to 30 dollars for which 10,000 Bitcoins were used.

CRYPTOCURRENCY DURING PANDEMIC

The coronavirus went from a local problem to a global problem affecting people all around the globe and everyone is reacting to it from investors, doctors and even the cryptocurrency. COVID-19 has taken the world by surprise. The pandemic has been fast-moving with unseen challenges that have destabilized global economies and changed the way the world operates. However, the pandemic could perhaps be the catalyst in moving towards a cashless society and with the nervousness around cryptocurrency easing is now the time for cryptocurrency to shine as interest in blockchain and cryptocurrency increases.

Crypto prices are falling: In February 2020, US stocks dropped the most in 2 years due to the coronavirus pandemic. This drop in the US stock market erased all the gains of 2020. Bitcoin faced a similar drop, but Bitcoin fell all the way up to 7200 dollars to erase its gains this year. Bitcoin co-relates the Macro Economy. Bitcoin was valued at just over $10,000, it then dropped to a shocking $4000 on the 13th February 2020. Bitcoin Cash, Ethereum, XRP also suffered similar fates.

CoronaToken : it is a new crypto and the makers of this crypto claim that the total supply is based on the total population of 7.7 billion. These tokens will be eliminated every 48 hours based on the number of coronavirus victims both infected and deceased. Furthermore, the developers said that they are giving 20% of the tokens to the Redcross.

A New Perk: some Crypto enthusiasts are excited as now people will shift to digital currency from paper currency to control the spread of viruses.

FACTORS FOR RISE IN PRICE OF EXISTING CRYPTOCURRENCIES

Bitcoin is just 12% shy of it’s previous all-time high of USD 19.891[4] as strong as momentum flows. Cryptocurrency is presently well supported by market sentiments over the need for hedging risk against a macro backdrop of unprecedented levels of fiscal stimulus and low or negative interest rates. Bitcoin halving is an event where bitcoin miners receive 50% less bitcoin for every transaction they verify. BTC halving occurs every 210,000 blocks, which equates to a halving occurring approximately every 4 years[5]. Since the last halving day on 11th May 2020[6] the currency has gained tremendous strength as the supply narrows. Furthermore, the higher acceptance of Bitcoin is also pulling some strings up with PayPal, the global payment technology giant recently announcing its intention of allowing Bitcoin transactions across its platform. Leading to a lot more demand for Bitcoin, as a result, the annual volatility figure is spiking. The cryptocurrency continues to climb and is closing in on the levels not seen since it reached its highest ever mark three years ago. The chorus is growing for crypto to scale the USD 20k levels mark.

And, the other reason for such rise in prices is the squeezing supply- since the last halving day on 11th May 2020, the reward for mining a block in a blockchain has been reduced by 50 percent to 6.25 bitcoins per block, which would be further reduced to 3.125 per block after 210,000 blocks have been mined.[7] Many industry experts anticipate that with current computation power and harsh rates, the next halving would fall on 8th May 2024. Besides this, on 21st October 2020, PayPal disclosed its intention to enter the cryptocurrency space by allowing its customers to transact in Bitcoins and various other cryptocurrencies through their PayPal accounts. Furthermore, the company envisions to enable its 26 million merchants to accept bitcoin as a source of financial transactions and ownership transfer. To begin with, the global payment technology giant would enable four currencies on its platform, namely Litecoin, Bitcoin Cash, Ethereum and Bitcoin.

LAUNCH OF NEW CRYPTOCURRENCY IN 2020

Uniswap: this coin has been launched in Zebpay and Wazirx. This crypto allows you to swap ERC 20 tokens (these are the coins built on the Ethereum network.), it is designed as a public good.

Facebook’s Libra Cryptocurrency Project: This currency is launching in January 2021. It is Libra USD which means 1 Libra USD = 1 US, similarly, many such Libra launches will be made. Libra Token and Libra Coin, whichever country regulates these tokens, that country Libra stable coin will be launched after which that stable coin can be used for cross border transactions. These stable coins are backed by reserves.


UNCERTAINTY OVER CRYPTOCURRENCY IN INDIA

The Loksabha Bulletin (Indian Parliamentary Bulletins) in its recent issue, stated that “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” to be introduced with an object “To create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”.[8]

Cryptocurrencies have been receiving attention in India over the recent months as many Indians see them as an alternative to buying gold. Trade volumes at different crypto exchanges in the nation have been rising. Furthermore, ahead of the union budget, #IndiaWantsCrypto was a trending hashtag on Twitter. But speculations estimated that the union budget would ban cryptocurrencies did cause jitters in the market. “Last week the price of bitcoin had dropped by 8-9%,” said Nischal Shetty, founder of India’s one of the most popular cryptocurrency exchanges “WazirX”. “But following the budget, it has recovered on our exchange.” This is in contrast to the global scenario where the price of bitcoin surged on January 29, 2021, after Tesla chief Elon Musk, one of the richest men in the world, added #Bitcoin to his Twitter bio and said he was a supporter.[9]



ANALYSIS

To conclude, Cryptocurrencies can be a boon to society if proper regulations are laid, as of now, not many countries have proper regulations relating to Cryptocurrencies. With the Covid-19 pandemic which caused uncertainty all around the world the initial months of 2020 did suffer a drop in the Cryptocurrency but as months passed the cryptocurrency picked up a rise in the prices due to reasons like PayPal enabling Bitcoins as a part of its transactions and also due to the law of supply and demand and also mainly because paper currency would cause the spread of the virus in comparison to the digital currency. As far as International Regulations are concerned relating crypto, G20 ministers should take note of this successful model. Regulators should scale-up their industry engagement and come together and make room in their digital sandboxes to scale up the crypto and digital assets sector, a sector that offers great promise for financial services into the 21st century that benefits everyone. If the currency is monitored correctly this limited currency can be used as a great asset by countries and big business ventures.


[1] Internet And Mobile Association vs Reserve Bank Of India (https://indiankanoon.org/doc/12397485/ )

[2] Global Crypto Industry Wants Regulators To Scale Up Engagement With Sector (https://www.forbes.com/)

[3] G20 Kicks off 2020 Discussion (https://news.bitcoin.com/g20-cryptocurrencies-2020/ )

[4] Bitcoin price history 2012-2020 (https://www.statista.com/statistics/326707/bitcoin-price-index/)

[5] Bitcoin Halving 2020- CMC Markets- (https://www.cmcmarkets.com/en/learn-cryptocurrencies/bitcoin-halving )

[6] Bitcoin Halving by Luke Conway- Investopedia, May 11, 2020- (https://www.investopedia.com/bitcoin-halving-4843769 )

[7] Ibid. (5)

[8] Lok Sabha Bulletin, dated January 29, 2021 (http://loksabhadocs.nic.in/bull2mk/2021/29012021.pdf)

[9] Why India’s cryptocurrency ecosystem is glad it was ignored in the country’s budget, Quartz India, February 02, 2021 (https://qz.com/india/1967426/indias-bitcoin-cryptocurrency-investors-relieved-after-budget/)

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