Alok Puranik
The discussion on cryptocurrencies has intensified. There is talk of banning it. The government may soon bring a law in this regard. The answer to the question of what cryptocurrency actually is, is not yet with the Reserve Bank and the Government of India, but investors have invested a lot of money in it. This is not the first time in India that governments are too late to act on issues on which they should be alerted first. Now the debate has begun as to what should be the policy stance towards cryptocurrencies.
According to reports, investment in cryptocurrencies can be brought under the control of the Securities and Exchange Board of India (SEBI). But it’s not that easy. Understanding and controlling what cryptocurrency is, may not be easy, but its dangers will sooner or later have to be faced by every major economy. It would be difficult to effectively control this without global coordination.
Cryptocurrency is the so-called currency in the world that can be used for anything from terror to anything else. But whose responsibility is this, who will ensure the final payment of the currency, it is not clear yet. It is possible to use cryptocurrencies for terrorist activities. That is, overall, cryptocurrencies are not only at risk to investors, but also to governments.
The biggest thing is that cryptocurrency cannot be considered a currency, although it is being sold as currency itself. A form or object can be recognized as currency only if it is clear who is its issuer. America is responsible for the US dollar currency. The responsibility of the Indian currency is taken by the Governor of the Reserve Bank. That is, the currency is the official currency only when someone is taking responsibility for it. Nothing like that in the case of cryptocurrencies.
The history of investing is full of unprecedented stupidity and to call it the miracle of human greed that every time someone becomes a medium of human greed. What are cryptocurrencies, this question is very important. Often these are denoted as a currency. But, it is not currency. A currency has an issuer, a currency has a guarantee behind it.
It is written on the top of Indian rupees that I promise to give this much money to the holder. No such guarantee is associated with Bitcoin or any other cryptocurrency. Then, cryptocurrency is any asset, such as shares or houses or bank deposits or gold. This question should also be investigated.
A share is a share in a company, a share of ownership in a company. As the business of that company grows, its profits increase, so does the value of that company. Simultaneously, the number of people wanting to share it increases, that is, the demand increases. That’s why the shares of good companies constantly go up. But Bitcoin does not give any participation in any company. It is not even a physical asset like a house. It is not a bank deposit, no bank takes responsibility for it. This is not gold. So this is what?
It is, in fact, a product created by technology, about which there have been various misunderstandings. The biggest misconception is that its prices will go up all the time. Be it the price of potatoes, shares, bitcoins or anything else, the basic economics are the same – demand is high, supply is low. But business is visible here, profits seem to be increasing. Another reason is rarity. Gold does not do anything, does not do any business, it is kept locked in a lock.
But gold is scarce, supplies are not accessible. The reason behind the increase in house prices is also the same reason, the supply is limited. But nothing is officially clear regarding the supply of bitcoin or any cryptocurrency. There is no such use of bitcoin or any cryptocurrency like gold has. Social status can be increased by wearing it. Is of the house, which can be lived in or of the stock, which can be bought to get dividend in future, price increase can be achieved.
Where then is the value in cryptocurrencies coming from. The answer is ignorance mixed with greed. According to an estimate, about 15 million people in India have invested money in cryptocurrencies. These 15 million people may not be even one percent of India’s population, but this number is three times the total population of New Zealand. The government has woken up very late on this issue. Now there is talk of making a law regarding this, all this should have happened earlier.
There is one very basic in human attitudes – greed. Greed grows only at the grave of conscience. This is not the first time such patterns of greed have appeared in the financial markets. Such greed for tulip flowers was observed in the Netherlands in the early seventeenth century. People got convinced that the prices of tulip flowers would only go up. People bought tulips by mortgage of houses. As it was meant to be, one day the expressions hit the ground and many people drowned.
A lot of businesses in the financial world run on the availability of fools. Someone took bitcoins for five hundred dollars, got another big fool to buy it for a thousand dollars. Plots of Mars can also be bought and sold. It all goes on. One day it is discovered that there are no buyers, and everything goes haywire.
Many shares were doubling overnight during Harshad Mehta’s scam days in 1992. Fools were getting bigger fools as buyers. One day everything went haywire. There should be a little bit of discretion in the price rise of anything. There should be clarity about its rarity, its supply, its demand. Otherwise, many babas get stunned by taking goods on the promise of doubling the ornaments in two minutes. The Reserve Bank has warned several times, which means that there is no clarity on bitcoin or any cryptocurrency.
Trading of any cryptocurrency, including bitcoin, is currently not under the purview of any Indian authority where a complaint can be filed. The Internet has globalized various types of loot, because greed is a global human instinct. Any investor who talks of giving returns of more than 12 percent in a year should be viewed with deep suspicion. But greed destroys doubt. This is what is happening in the case of bitcoin.
No one has an answer to the question as to what are the concrete reasons for bitcoin’s price continuing to go up, except that its price has gone up so much in the past in a very short period of time. The government should act expeditiously in this regard. Cryptocurrencies are not just a threat to investors, but also to governments.
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