Home Finance News Bitcoin, cryptocurrencies and the painful story of insane investments

Bitcoin, cryptocurrencies and the painful story of insane investments

On February 14, this 12 months, I wrote in my BizyLife column on the pressing want for a worldwide ban on cryptocurrencies as they carried no underlying worth. I additionally made it amply clear that encouraging cryptocurrencies would tantamount to encouraging daylight robberies. However I didn’t anticipate at the moment that I’d be pressured to jot down concerning the cryptocurrencies and their uselessness once more in such a brief interval. The reason being easy. Bahamas-based FTX, the world’s third largest cryptocurrency change, collapsed like a pack of playing cards and filed for chapter. And its founder Sam Bankman-Fried misplaced his multibillion greenback wealth in a single day.

To make an extended story brief, Bankman-Fried, a Massachusetts Institute of Expertise (MIT) graduate, based FTX in Might 2019. Quick for ‘Futures Trade’, FTX registered a speedy development and have become the world’s third largest crypto change by quantity with over a million customers inside three years. Its valuation additionally skyrocketed to $32 billion by February 2022 when it raised $400 million in Collection C funding. Changpeng Zhao, who owns world’s largest crypto change Binance, was the primary investor in FTX.

He put in $100 million for a 20 per cent stake in FTX quickly after it was based. Softbank, Sequoia Capital and a number of others additionally invested within the platform. With this, Bankman-Fried’s wealth additionally soared to $26 billion earlier than falling to $10.5 billion in October 2022. However these glitzy numbers didn’t final lengthy because it was discovered that FTX diverted large quantities of traders’ funds to Alameda Analysis, a buying and selling agency floated by Bankman-Fried earlier than FTX. Alameda Analysis in flip used these funds to commerce on FTX, thereby fuelling quantity development on the change. When this got here to mild, FTX collapsed and filed for chapter as traders began withdrawing funds from their accounts on the change.

On November 8, when the FTX disaster erupted, Bankman-Fried’s web value plummeted by a staggering 94 per cent to $991 million, based on the Bloomberg Billionaires Index. And three days in a while November 11, he misplaced all the things and have become penniless on the index. He misplaced almost $10 billion in a matter of 4 days and that is additionally a document. Curiously, nobody has seen such a fall in wealth in such a brief span. Moreover, he based the change when he was 27 years of age, noticed his wealth skyrocket to $26 billion in two years and misplaced all the things quickly after he turned 30! What a curler coaster experience!?

However the fallout is far larger. Submit the FTX disaster, the entire market capitalisation of cryptocurrencies nosedived by as a lot as 70 per cent to $763 billion from a peak of $2.5 trillion, or almost equal to the dimensions of India’s financial system, in Might 2021. Which means cryptocurrency traders misplaced $1.74 trillion in notional wealth. That is some huge cash, is not it? Bitcoin, the primary digital foreign money that spawned crypto mania on the planet, additionally misplaced closely. Its value sank to round $15,000 from a excessive of $69,000 a 12 months in the past. On Sunday, BTC, as bitcoin is understood in brief kind, was buying and selling at $16,664 apiece. Its market capitalisation crashed to $319 billion now from as excessive as above $1 trillion in November final 12 months.

The turmoil within the cryptocurrency market submit the FTX disaster, proves as soon as once more past doubt that cryptocurrencies are usually not the sport for sane traders. It is nothing wanting madness if one invests in these digital belongings. In any other case, how can we clarify the way in which FTX founder Sam Bankman-Fried has misplaced his complete wealth in a matter of some days?

Frankly talking, the Reserve Financial institution of India (RBI), India’s central financial institution, did the fitting factor by not recognising digital currencies together with Bitcoin. It has all alongside argued that non-public cryptocurrencies don’t have any worth in any respect and don’t have any place in any financial system. The Narendra Modi authorities did a intelligent factor by imposing 30 per cent tax on earnings from cryptocurrency investments. Apart from, there’s additionally one per cent TDS (tax deducted at supply) on all of the cryptocurrency transactions. These measures made Indians assume twice earlier than investing in digital belongings. Subsequently, investments into digital belongings got here down drastically in India. In any other case, many extra individuals would have misplaced their hard-earned cash within the present crypto meltdown.

Moreover, RBI can be gearing as much as launch its personal digital rupee – Central Financial institution Digital Foreign money (CBDC). It has already rolled out a pilot mission for this. Nevertheless it’s to be seen how efficient this digital rupee might be.

Anyway, I wish to placed on document once more that blockchain as a expertise is a recreation changer for the world in some ways. However blockchain-spawned cryptocurrencies weren’t, are usually not and can by no means be value a penny. They’re merely ponzi schemes of monster proportions. It is time to act quick and curb them earlier than thousands and thousands of others lose their hard-earned cash. Banning personal digital currencies the world over is the one technique to management the menace! Is anybody listening?


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