After CoinDesk pushed the panic button, Binance, a rival crypto exchange of FTX, announced on Nov. 6 that the company would sell off all its FTT tokens. This added fuel to the fire and the price of FTT dropped sharply. As the price dropped, panic gripped many FTX customers and they moved to withdraw their assets from the platform. The situation triggered a run on the FTX and billions of dollars poured out of the platform. This forced the exchange to stop allowing customers to take money out of the platform. Now reports indicate that FTX is facing a huge gap between what it owed and what it could pay out.
The collapse of FTX is a perfect storm and questions on the viability of the crypto ecosystem will remain there as it would be very difficult to find appropriate answers to these questions.
At a time when crypto markets were booming in India and people were busy in selling their other assets for investing in cryptocurrencies, the Reserve Bank of India (RBI) highlighted the risks posed by these virtual currencies.
Last year, the RBI didn’t lose time to denounce cryptocurrencies not as a currency, asset or commodity; with no underlying cash flows and no intrinsic value. Even the apex bank called cryptos worse than Ponzi Schemes; undermining financial integrity; and evading government controls to bypass the regulated financial system.
Today cryptos are collapsing with major crypto currencies including Bitcoin and Ethereum losing value. A report worth quoting states that “Bitcoin, which hit over $63,000 in April 2021, is now down nearly 75% from that level. Ethereum, which hit a high of around $4,800 in November, 2021 has fallen 73% since. Binance Coin, which hit a high of $670 in May 2021, is now down by 58%.”
Here the RBI deserves kudos for picking the threats which these cryptocurrencies were posing to the stability of the financial system. It’s a laudable effort when top management of the apex bank including none other than its Governor Shaktikanta Das took pains to apprise general investors about the dangers loaded in investment in cryptocurrencies.
However, the government’s stand on cryptocurrencies is not in line with the RBI stance. Both are not on the same page. The government’s move to collect taxes on these virtual currencies is ambiguous. Investors are confused and many assume that the taxation is an admission of the legality of virtual assets in India. Now the major dent in the crypto ecosystem caused by the fall of FTX exchange and loss of billions of dollars to the investors globally, it would be interesting to watch RBI and the government on the same page. Definitely, tight regulations on cryptocurrencies on global lines are on cards.