The latest meltdown in cryptocurrency market was triggered by an interplay of several factors including unregulated financial infrastructure open to manipulation, and pseudo-growth momentum. Besides, the crypto market is determined by sentiments.
Although there is a market capitalisation of a trillion dollars but liquidity and transaction volume run into a few hundred billion dollars, explains Gaurav Mehta, Founder of Catax app in an interview with MintGenie.
Also, he says crypto economy is too small to have a direct correlation with the macro-economic factors.
Edited Excerpts:
What are the reasons for the crypto crash, and do you think the prices will become normal any time soon?
Market correction in every financial market was contingent upon evaluating the impact of COVID, monetary policy, and business cycles. However, the latest meltdown in crypto market was precipitated by a combination of several factors such as unregulated financial infrastructure built on blockchain that was open to manipulation and avarice, as well as pseudo-growth momentum that prompted rapid adaptation across the globe.
Are cryptocurrencies getting more influenced by macro-economic factors such as inflation, movement of financial markets, etc?
I believe that the cryptocurrency market is driven by sentiments, with a market capitalization of a trillion dollars but a liquidity and transaction volume of only a few hundred billion dollars. Bulls and bears are determined by the internal consensus of crypto participants.
The market believes there is a correlation with inflation, financial market movement, and other macroeconomic factors, but the crypto economy is too small to have a direct and strong correlation with the factors that determine the fate of the financial economy. At least, that was the promise of the crypto economy – a true hedge – and it has been fulfilled.
Do you think the ongoing volatility of crypto tokens globally have anything to do with the regulations or the lack of them?
Crypto has flourished in the absence of regulation for the past 13 years, and its participants encompasses visionaries, economic radicals, and enthusiasts of distributed technology, crypto land is resort from government, and regulations are discounted here. There is dire need to regulate crypto economy to ensure consumer protection and responsible innovation.
When we talk about blockchain technology — which is believed to be pathbreaking on several counts, we often reduce the discussion to cryptocurrencies. Do you think it's a fair thing to do, or should cryptos be seen in a different light?
Cryptocurrency and blockchain are two distinct but intertwined worlds. While blockchain is a technology, the first effective use is cryptocurrency. It should be distinct for each silo in terms of regulation.
RBI and govt have given several signals indicating that cryptos are not welcome here in India, do you think India could miss out on web3 revolution?
The Web3 revolution is all about decentralisation, and crypto is the first and not the last application of decentralised technology. Web3 has just began and it’s all about bringing back ownership in the hands of individuals with use of decentralised technology of blockchain.
In the absence of a crypto market, blockchain innovation will continue in India, but access to cryptocurrencies, particularly international assets such as bitcoin, may be restricted and regulated.
As blockchain technology promises to offer anonymity, doesn't buying of these currencies on exchanges after giving KYC defeat the very purpose of creating decentralised anonymous technology?
Cryptocurrencies are pseudo-anonymous, and with a small amount of information from exchanges, it is possible to follow them by analysing the blockchain ledger. Crypto is not anonymous anymore due to evolution of ecosystem and personally anything having a digital footprint is unreliable and offers selective anonymity.