Like everything lacking sufficient regulatory backing, crypto currency also falls into shady territory. The whole system channelising its flow is, in fact, opaque for the majority of the population. That is why hyping it had the downside risk of burning it down. Well, the time has come for that. The whole system is suffering blows after blows.
Decline in value of Non-Fungible tokens
The trouble for cryptos started way back in December when its biggest market India decided to tighten its noose on the virtual currencies. Immature investors started to pull out of the market and slowly the downtrend led to a decline in fundamental aspects of crypto coins.
Non-fungible tokens, once a hotbed of crypto enthusiasts, only witnessed declines in recent times. In January this year, NFTs worth $4.62 billion were sold all around the world. It registered an abnormal slump in February when NFTs only worth $2.99 billion were sold. The sales further declined in March, with the third month of the year witnessing the sales of NFTs worth only $2.44 billion.
Cryptocurrency and NFTs are interlinked to a large extent. Though people can buy NFTs using Fiat Currency like Rupee, and Dollar, most of the buyers chose cryptocurrency to buy NFTs. Moreover, if a cryptocurrency also has NFT projects, then that currency is considered to be more stable than those not having NFTs.
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India’s taxation and the Russia-Ukraine crisis
The next big shock to the crypto market was India’s decision to impose a tax on people involved in crypto trading. India currently charges a 30 per cent tax on crypto traders. It did ease the pressure on the crypto community as they believed that now they are in the ambit of legality. But there are still looming confusions around the legality. Taxation only means that their income will be taxed, but it doesn’t mean the source of income (crypto trading) is legal.
The problems of the crypto world were exacerbated by the Russia-Ukraine tension. Russia and the USA are hotbeds of crypto mining. The tension between both countries meant that now the miners were running for money. Though, miners are hoping that in the wake of sanctions, Russia would soon revert to cryptos.
Voices for curtailing energy consumption and NPCI
The US government’s go-green initiative did not bode well for miners. Annual Bitcoin consumption sucks up 127 terawatt-hours of electricity, which is higher than that of Norway. After this year’s ‘green budget’, the voices for curtailing the energy consumption by crypto miners got louder which further sent shivers in the market. Cryptocurrencies kept falling, but the stable of the bunch did not see much decline.
Then in April 2018, another negative news from India hit the market. National Payments Corporation of India (NPCI) effectively announced that using UPI for cryptocurrency is illegal. Coinbase, a US-based cryptocurrency, then decided to pause UPI on its platform. Soon, banks and wallets like Mobikwik became more cautious and tightened the rules for transactions with crypto exchanges.
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LUNA HAS FALLEN
Things were getting harder for them, but fundamentally stable coins still had a degree of resilience. Soon, the veil fell down and Luna, one of the most stable cryptos, crashed. Luna is considered one of the most fundamentally stable coins in the crypto world simply because it has a sister coin as well, known as Terra. If the price of any one of them goes haywire, investors can burn the one and exchange it with the other.
But, in mid-May, Luna fell under tremendous selling pressure resulting in it losing almost all of its value. It ended up wiping out $40 billion from the crypto market. Then the coin owners came up with Luna 2.0. After an initial spike, it also went downhill and took away 70 per cent of the investors’ money with itself. The fall of Luna 2.0 is a clear indication that now investors are losing trust in the virtual currency. They have realised that it is not a sustainable mode of investment.
Recent months have not been well for cryptos. Initially, the optimistic of the bunch believed that it would recover shortly, but the hopes are getting slimmer day by day. Even the best and fundamentally stable coins are falling apart now. This is a clear indication that cryptocurrency is another form of a tech bubble.