At the time of this article the total market capitalization of cryptocurrencies stands at $350 Billion with total Bitcoins amounting to roughly $200 Billion. To put this into context, the value of total Indian rupees in circulation is about $250 Billion! What is being called out as the biggest bubble of our lifetimes, might just be getting started! The demand for Bitcoin and other digital currencies particularly in India has gone parabolic over the last month. For example one of the major Indian exchanges just announced that while it took them about 3 years to gather 100,000 customer registrations, they have received over 200,000 new customer registrations in the last month alone! This excessive demand is being reflected in the price of these digital currencies which are being traded for a 10-20% premium compared to the average global price. This type of arbitrage will continue until there is enough supply/exchanges to meet the demand. In response, multiple Indian startups have emerged to meet this demand for trading not just bitcoins, but other cryptocurrencies as well.
Over the last couple of months, the progress towards cryptocurrency regulation in India has been very slow. While the SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India) continued to fight over whether this will be treated as an asset or currency, two young Indians turned to Supreme Court to make laws around Bitcoin/cryptocurrencies less turbid. The supreme court has issued notices to the Central Government, RBI, Income Tax Department, Enforcement Directorate, SEBI, the Ministry of Electronics and Information Technology (MeitY), and the Ministry of Law and Justice to respond within four weeks. Cryptocurrencies are the default means of exchange for the dark web and continue to be used for a wide spectrum of illegal activities. India needs to act fast and come up with a regulatory framework that provides a backing for condemning illegal activities. However, this has not stopped Indians from trading cryptocurrencies as trade in Indian rupees has accounted for over 10% of the global Bitcoin trade volume in the last few months. Currently the major exchanges seem to be following stringent KYC/AML policies which is a step in the right direction.
The future of blockchain is bright and I have no doubt that it will bring about a revolution that everyone is dreaming of. But that takes time. As of today the biggest use case of Ethereum is to host an ICO (99% of which will fail) and to trade digital cats! On the other hand, Bitcoin is only a store of value and not a medium of exchange. The fees are high and the network is not ready to handle all the world’s transactions. There are a lot of great minds working to develop interesting applications on the web 3.0 but they are also in agreement about the market’s irrational exuberance at the moment. With Bitcoin Futures to begin trading via traditional exchanges on December 10 and 18, the bubble could pop in the short term as this does not increase the demand for bitcoins but allows traders to open short positions very easily. There will be many boom and bust cycles over the coming years and you should not position yourself to lose money on the biggest bull run of our lifetime! Invest with caution and just remember these 3 simple strategies: buy low and sell high (not the reverse!!!), dollar cost averaging (auto-invest a set amount every few days/months) and finally the very best – HODL!