CRYPTOS INTEGRATE WITH FINANCIAL MARKETS UNDER RBI NOSE DIGITAL CURRENCY STARTS MOVING IN TANDEM WITH LARGER MARKET

Certain things grow on you without you even noticing it; it could be an emotion, an addiction or even a deadly disease like cancer. This has been the case with cryptocurrencies. Central banks, the very antithesis of cryptocurrencies, initially ignored its existence saying it was financial gibberish. But over time, the ever growing popularity of cryptos became an obsession with them and now even the central banks have realised there is no life without cryptocurrencies and the blockchain technology that powers it.

Despite the alternative currency being considered outcast by the central banks, cryptocurrencies have been slowly integrating into the mainstream financial system. So much so that they have started reacting to market developments like any other financial instrument. For instance, in tandem with the rest of the market, Bitcoin and other major cryptocurrencies have crashed in response to the discovery of the new more dangerous variant of Covid, named Omicron. Global markets, including those in India, have also fallen as fears of a new wave have caused widespread concern about its economic fallout even as the world has hardly come out of the Covid crisis.

The price of Bitcoin has crashed to a seven-week low on news of Omicron threat, dropping over 6 per cent in the last 24 hours to $54,425.11, according to reports.. The tumble brought the value to the lowest level since October, down 20 per cent from an all-time high of nearly $69,000. Other cryptos also tanked, with Ether falling nearly 7 per cent to $4,125.86 and Binance slumping 5.37 per cent to $592.32.

Whether the central banks like it or not, they, including the Reserve Bank of India, which considers itself more central than any other central bank in the world, have realised the futility of feigning ignorance about the new developments. No wonder, the RBI is toying with the idea of its own cryptocurrency, linked to the rupee, so that it does not miss the crypto action. RBI has been the driving force behind the new cryptocurrency bill that the government says it plans to introduce in the winter session of parliament. The news initially depressed the Indian crypto market briefly, but it soon took the news in its stride.

While the Reserve Bank has indicated that not all cryptos would be banned, which it cannot obviously do when the central bank itself is considering its own crypto, it is widely conjectured that some of the minor coins may be outlawed. It has already talked about exceptions being allowed to ‘promote the underlying technology’ of cryptocurrencies and their regulated use. This would probably mean that crypto majors like Bitcoin, Ether, Dogecoin and Shiba Inu, which are considered public as the transactions can be tracked through blockchain and as such transparent, will not be banned while some of the small private currencies, such as Monero and Dash, which protects the anonymity of individual transactions may face the axe.

The government will have to contend with the uncertainties that the RBI move for its own official cryptocurrency may face from the courts when coins are selectively recommended for ban. Courts have already struck down several RBI orders that sought to prevent trading and investment into cryptos, and this is not lost on the new generation investors. Bitcoins and other front-rankers have grown to become too big to be outlawed in one stroke and even the Reserve Bank cannot but recognise this reality. It is an irony of the situation that the RBI is invoking transparency, the hallmark of the digital currency ecosystem, the lack of which makes the legacy system obsolete and inefficient, to rein in cryptocurrencies.

With the increasing popularity of cryptocurrencies among the millennials, digital currency has become the first investment choice for a large number of people in India. According to available estimates, more than 2 crore Indians, majority of them new age investors, own cryptocurrencies. The estimate of money invested in the alternative currency system is in the vicinity of $6 billion. Investments into cryptos are estimated to have recorded over 600 per cent jump in over one year from April 2020. Simultaneously, there has been a proliferation of start-ups using blockchain technology and the token system. All this cannot be simply undone by an administrative or even legislative edict. and Himachal Pradesh in the latter part. Uttar Pradesh is where the main battle will be fought. This is because BJP is in power in this Hindi heartland and will go all out to retain power there, which is critical for its hold at the Centre. But discussion on how to strengthen BJP in Tamil Nadu also figured, which assumes significance. This is evident from the fact that several party leaders from Tamil