Many pause crypto investing

They cite uncertainty and high taxation as reasons for their reluctance. A Bengaluru status report in the wake of a crypto exchange in US filing for bankruptcy last week

Many Bengalureans have suspended investing in cryptocurrency amid mounting uncertainty about its future.

FTX, a leading cryptocurrency exchange based in the US, filed for bankruptcy last week. News has emerged of unauthorised access and theft of its customer funds’ to the tune of 470 million dollars. The collapse of FTX resulted in the prices of various cryptocurrencies plunging (Ethereum by 23%, for instance).

Sathvik Vishwanath, co-founder of Bengaluru-based crypto exchange Unocoin, believes the FTX crash hasn’t impacted India because most of its clients are in the US and Europe.

But the continuing uncertainty has left Bengaluru investors wary. Cryptocurrency Luna crashed in May; the price of Bitcoin, the most popular of all, came down by 75% since its all-time high last November; and the Indian government’s move to levy a 30% tax on crypto earnings and 1% TDS has added to the woes.

‘Scene is gloomy’

Until six months ago, crypto formed 15% of Abir Bhattacharjee’s investment portfolio. Now it is down to 1%. The risk analyst with a startup says, “I cashed it as I needed money to pursue my studies abroad. And also because the crypto scene is gloomy right now. Most of my friends have stopped investing
in crypto.”

Sundar Krishnan sold off his cryptocurrencies last year because he had a cash crunch. “Luckily, the prices were high and my returns were 10 to 12 times. Even my friends have sold them and made up to 25 times profit. But I know of a friend who is distressed because he did not withdraw in time,” the entrepreneur in his 30s says.

Some of his friends are dismayed at the turn of events with HyperVerse, which offers a decentralised financial infrastructure for digital currency users. “It has stopped the withdrawals. So their money is ‘stuck’,” he says.

He doesn’t plan to reinvest until the market is stable. “The Russia-Ukraine crisis, the rise of speculative trading, high taxation in India when it is tax-free in Dubai, and the fact that most countries don’t recognise it as legal tender are affecting cryptocurrency, which was seen as a ‘big thing’ once,” he says.

Rakesh Singh joined the crypto scene way back in 2014 “out of idealism, and to de-risk my money from government-controlled banking policies, as we saw with demonetisation.” Digital tokens allowed instant cross-border transactions, and that was another attraction. But he backed out early, selling 90% of his crypto stock in 2019 and leaving behind about Rs 30,000.

The solutions architect with a cybersecurity firm shares his grouse: “Exchanges have turned this into a speculative game. Plus, taxation is not enough to regularise a currency. We need a system to insure our money against losses by scams.”

Software developer Ajay S has beefed up his crypto investments by 50% though. These crashes are cyclical and he wants to be in the game when it is bullish again. Sathvik also sees this as a lean phase when the volume of crypto trade globally is down by 20-25%.

Miners hit

The volatility has also hit miners, people who run rigs to mine cryptocurrencies. A rig is a collection of graphics processing units (GPUs), used to process a lot of data simultaneously and is popularly used for machine learning, video editing, and gaming.

Digital marketer Abhishek (name changed) assembled a rig for Rs 2.5 lakh in November 2021, running it from a bathroom in his house as the system makes a roaring noise all time. He wound up the side business this April, recovering only 40% of his investment. “In 2021, when the crypto trade was booming, I had bought second-hand GPUs at an inflated price. I can’t sell them currently. The loss will be steep,”
he says.

Brijesh (name changed) put together a rig in his room at a cost of Rs 5 lakh at the peak of the pandemic. He shut it in a year following a family emergency, and electricity bills shooting from Rs 3,000 a month to Rs 10,000. “Also, the word was going around that India may propose a law banning trading and mining of
cryptocurrencies, so I stopped. Even China has put a ban.”

Two months ago, Shreyas K C shut down 10 Bitcoin-dedicated rigs he was maintaining inside his computer hardware store near Commercial Street. “Four were mine and the rest belonged to people who did not have space and ventilation at home. These had 80 GPUs in total. I have managed to sell three-four but at half the cost,” he shares.

“People running rigs on conventional electricity are coming to resell GPUs, as opposed to those who have solar panels,” says Kishan Rajpurohit, another computer hardware seller on S P Road says.

During the second lockdown, he says, he was selling 100 to 200 GPUs to crypto enthusiasts every week as against 150 GPUs a month earlier. “The rate has come down from Rs 70,000 a piece to Rs 36,000,” he says.

What is crippling crypto?

Rohit Regonayak, cofounder of Fandefi, a blockchain company, and also a tech consultant, says some crypto exchanges are taking undue risks with users’ money. “One way to fix it would be to put in control mechanisms, but that is against the ‘decentralisation’ principle of blockchain, the technology on which crypto runs. The industry is divided on that. And any time there is news of crypto not performing, or impending regulation, people panic and start withdrawing. The same applies to the stock market as well but since this is digital, withdrawals happen instantly. Panicked withdrawals and, especially by large investors, can cause a cryptocurrency to tank, which cascades onto other tokens.”

So what happens to NFTs?

The sale of NFT (non fungible token) art — a unique piece of digital content, traded often with crypto — has come down. Many creators are using the time to create artworks for the future and grow the community.

“Some are selling multiple editions of artwork at a smaller value so buyers don’t feel the pinch. That is,
if an artwork costs 1 Ethereum, an artist is selling 10 editions of it for 0.1 each,” says Bharathiraja Muruganandham, a 2D artist whose NFT artworks are themed on meditation and cosmic energy.