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Finance Minister Sitharaman Says India to Take a Considerate Decision on Crypto Regulation

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By Press Trust of India | Updated: 28 April 2022

Flagging concerns over likely misuse of crypto, Finance Minister Nirmala Sitharaman has said India will take a considerate decision on regulation around the virtual currency. The decision on crypto will not be rushed through, she said in an interaction at Stanford University.

“It will have to take its time…all of us to be sure that at least with a given available information, we’re taking the decision. It can’t be rushed through,” she said.

The minister clarified that the government is open to promote innovation and well-grounded progress made in the distributed ledger technologies, which are coming in the blockchain.

“So, our intention is in no way to hurt this (innovation around cryptocurrency)…but (we need to) define for ourselves…,” she said.

Cryptocurrencies can also be manipulated for money laundering or terror financing, the minister noted.

So, these are some of the concerns, not just India, but many countries of the world have and are also discussed in global, multilateral platforms, she added.

India is planning to introduce central bank-backed digital currency or Central Bank Digital Currency (CBDC).

Sitharaman, in her Budget speech on February 1, had announced that the digital rupee or CBDC would be issued by the RBI in the coming fiscal year.

She had also announced that the government will levy a 30 percent tax on gains made from any other private digital assets from April 1.

Speaking about CBDC, Reserve Bank of India Deputy Governor T Rabi Sankar earlier this month said a nuanced and calibrated approach is essential for the launch of India’s maiden digital currency as it would have various implications for the economy and monetary policy.

The essential learning does not come from global experience but basically comes from your own experience, he had said.

On the merger of HDFC and HDFC Bank, Sitharaman said, it is a good step because India needs a lot more big banks to take care of growing needs for infra financing.

Earlier this month, India’s largest private lender HDFC Bank agreed to take over the biggest domestic mortgage lender in a deal valued at about $40 billion (roughly Rs. 3,06,770 crore), creating a financial services titan in the largest deal in the country’s corporate history.

The proposed entity will have a combined asset base of around Rs. 18 lakh crore. The merger is expected to be completed by the second or third quarter of FY24, subject to regulatory approvals.

The transaction involves the amalgamation of HDFC and its two wholly-owned subsidiaries HDFC Holdings and HDFC Investments with HDFC Bank.

HDFC, as the promoter of HDFC Bank, holds 21 percent in the lender along with the two subsidiaries, which on the merger will be more than double the size of private sector peer ICICI Bank.

With regard to the digital divide, Sitharaman said some steps have been taken to bridge it.

Asked about the under-reporting of COVID death numbers, she said the data that the central government reported was compiled from states.

The revision was due to changes made by the state governments, she said, adding some death that took place at home was updated later by states.

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FTX Has ‘A Few Billion’ to Support Industry, Claims Head Sam Bankman-Fried

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By Reuters | Updated: 7 July 2022

Sam Bankman-Fried, head of one of the largest cryptocurrency exchanges, FTX, said he and his company still have a “few billion” on hand to shore up struggling firms that could further destabilise the digital asset industry, but that the worst of the liquidity crunch has likely passed.

Bankman-Fried, 30, who is from California but lives in the Bahamas where FTX is based, has become crypto’s white knight in recent weeks, throwing lifelines to digital asset platforms which have faltered as cryptocurrencies prices have cratered. Bitcoin is down around 70 percent from its all-time November high of nearly $69,000 (nearly Rs. 50 lakh).

“We’re starting to get a few more companies reaching out to us,” Bankman-Fried said in an interview. Those firms are generally not in dire situations, though some smaller crypto exchanges may still fail, he said, adding that the industry has moved beyond “other big shoes that have to drop.”

Bankman-Fried’s crypto-trading firm, Alameda Research, gave crypto-lender Voyager Digital a $200 million (nearly Rs. 1,600 crore) cash and stablecoin revolving credit facility, and a facility of Bitcoin, as the company faced losses from exposure to crypto hedge fund Three Arrows Capital. On Wednesday, Voyager filed for bankruptcy.

Also in June, FTX handed US cryptocurrency lender BlockFi a $250 million (nearly Rs. 2,000 crore) revolving credit facility and on Friday announced a deal giving FTX the right to purchase it based on certain performance triggers.

The goal of the bailouts was to protect customer assets and stop contagion from ricocheting through the system, Bankman-Fried said.

“Having trust with consumers that things will work as advertised is incredibly important and if broken is incredibly hard to get back,” he said.

In January, FTX unveiled FTX Ventures, a $2 billion (nearly Rs. 1,58,200 crore) venture capital fund focused on digital asset investments, which it has since drawn on to help bail out firms that are lacking liquidity, but not assets.

“It does get increasingly expensive with each one of these,” Bankman-Fried said, adding that the firm still had enough cash on hand to do a $2 billion deal if necessary.

“If all that mattered was one single event, we could get above a couple billion,” he said, stressing that isn’t his preference.

On one or two occasions, Bankman-Fried, who made billions arbitraging cryptocurrency prices in Asia beginning in 2017, said he has used his own cash to backstop failing crypto companies when it didn’t make sense for FTX to do so.

“FTX has shareholders and we have a duty to do reasonable things by them and I certainly feel more comfortable incinerating my own money,” he said.

Bankman-Fried also in May revealed he had personally taken a 7.6 percent stake in Robinhood Markets, capitalising on the trading app’s weakened share price.

Forbes pegged Bankman-Fried’s net worth this year at around $24 billion (nearly Rs. 1.9 lakh crore), but Bloomberg’s Billionaires Index in May said that figure has been cut in half due to the crypto crash.
CRYPTO WINTER

As the US Federal Reserve has begun aggressively hiking rates to combat hyperinflation, investors have fled the crypto markets.

The crash in cryptocurrency prices, referred to as “crypto winter,” may have bottomed, as prices have stabilised, but it will largely depend on the macro-economic situation, said Bankman-Fried, a 2014 graduate of the Massachusetts Institute of Technology.

“I don’t think it’s an existential threat to the industry, but I do think it is a fair bit worse that I would have anticipated,” Bankman-Fried said.

Bankman-Fried started his career in finance at quantitative trading firm Jane Street, then founded crypto trading firm Alameda Research and in 2019 set up FTX, which was valued in January at $32 billion (nearly Rs. 2.5 lakh crore).

He has said he plans to give away 99 percent of his wealth, and that he could spend up to $100 million (nearly Rs. 800 crore) supporting candidates in the 2024 election cycle, focusing on issues like pandemic prevention and bipartisanship.

While rival crypto exchanges face layoffs after earlier hiring sprees, FTX has around 300 employees, and Crunchbase pegs Alameda’s staff at fewer than 50.

“Every quarter this year, I expect our workforce to be bigger than the previous quarter, but we’re trying not to grow insanely quickly,” he said.

© Thomson Reuters 2022

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Voyager Digital Files for Bankruptcy Week After Suspending Withdrawals, Trading and Deposits

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By Reuters | Updated: 6 July 2022

Voyager Digital has filed for bankruptcy, the crypto lender said in a statement on Wednesday, a week after suspending withdrawals, trading and deposits to its platform as it sought additional time to explore strategic alternatives.

In its Chapter 11 bankruptcy filing on Tuesday, Toronto-listed Voyager estimated that it had more than 100,000 creditors and somewhere between $1 billion (roughly Rs. 7,930 crore) and $10 billion (roughly Rs. 79,305 crore) in crypto assets. The company also recorded the same range for its liabilities.

Chapter 11 bankruptcy procedures put a hold on all civil litigation matters and allow companies to prepare turnaround plans while remaining operational.

“The prolonged volatility and contagion in the crypto markets over the past few months, and the default of Three Arrows Capital on a loan from the company’s subsidiary, Voyager Digital, LLC, require us to take deliberate and decisive action now,” Voyager Chief Executive Officer Stephen Ehrlich said.

Many of the crypto industry’s recent problems can be traced back to the spectacular collapse of so-called stablecoin TerraUSD in May, which saw the stablecoin lose almost all its value, along with its paired token.

Back in May, the crypto market was rocked by the collapse of the stablecoin TerraUSD, an outlier because its peg to the dollar was supposed to be maintained by a complex algorithmically driven mechanism rather than by reserves of dollars or other assets, as is typical for stablecoins.

Stablecoins are pegged to the value of mainstream assets such as the dollar to boost confidence, and are the main medium for moving funds between cryptocurrencies or into regular cash.

TerraUSD’s woes had contributed to a slide in crypto markets that saw over $357 billion (roughly Rs. 2,771 crore) or 21.7 percent of digital asset market capitalisation wiped out week-on-week, according to research from crypto exchange Kraken.

© Thomson Reuters 2022

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NFT Sales Plunge Amid Crypto Market Meltdown, Rising Inflation and Withered Risk Appetite

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By Reuters | Updated: 5 July 2022

The NFT dream isn’t dead, but it’s taken a big non-fungible beating.

The market shone gloriously last year as crypto-rich speculators spent billions of dollars on the risky assets, pumping up prices and profits. Now, six months into 2022, it’s looking ugly.

Monthly sales volume on the largest NFT marketplace, OpenSea, plunged to $700 million (roughly Rs. 5,500 crore) in June, down from $2.6 billion (roughly Rs. 20,600 crore) in May and a far cry from January’s peak of nearly $5 billion (roughly 40,000 crore).

By late June the average NFT sale sunk to $412 (roughly Rs. 33,000) from $1,754 (roughly Rs. 1,40,000) at the end of April, according to NonFungible.com, which tracks sales on the Ethereum and Ronin blockchains.

“The crypto bear market has definitely had an impact on the NFT space,” said Gauthier Zuppinger, co-founder of NonFungible.com.

“We have seen so much speculation, so much hype around this kind of asset,” he added. “Now we see some sort of decrease just because people realise they will not become a millionaire in two days.”

The NFT market has collapsed along with cryptocurrencies, which are typically used to pay for the assets, at a time when central banks have jacked up rates to combat inflation, and risk appetite has withered.

Bitcoin lost around 57 percent in the six months of the year, while Ether has dropped 71%.

Dip or death spiral?

For critics, the crash confirms the folly of buying such assets, tradable blockchain-based records linked to digital files such as images or videos, often artwork.

The Malaysian businessman who bought an NFT of Jack Dorsey’s first tweet for $2.5 million (roughly Rs. 20 crore) last year struggled to get bids of more than a few thousand dollars when he tried to re-sell it in April.

But Benoit Bosc, global head of product at crypto trading firm GSR, sees the downturn as the perfect time to build a corporate NFT collection – the crypto equivalent of the fine art traditional banks display to impress clients.

Last month, GSR spent $500,000 (roughly Rs. 4 crore) on NFTs from what Bosc calls “blue-chip” collections – those with large online fan bases.

His purchases include an NFT from the Bored Ape Yacht Club, a set of 10,000 cartoon monkeys made by US-based company Yuga Labs and promoted by the likes of Paris Hilton and Jimmy Fallon.

Such is the hype surrounding Bored Apes that Yuga Labs raised $285 million (roughly 2,300 crore) in April by selling tokens it says can be exchanged for land in a Bored Apes-themed virtual world it has not yet launched.

Yet the average sale price for a Bored Ape tumbled to around $110,000 (roughly Rs. 87,00,000) in June, having halved since its January peak of $238,000 (roughly Rs. 2 crore), according to market tracker CryptoSlam.

In his New York office, Bosc put up three screens on which to display his NFTs, which include various pixelated characters and a Bored Ape bought for $125,000 (roughly Rs. 1 crore).

“For us, it’s also a brand exercise,” Bosc said. Owning a valuable NFT and using it as a profile picture on social media is a way to establish “respectability, authority and influence” in the crypto sphere, he said.

Game over? Game on?

Nonetheless, the future of NFTs is distinctly uncertain, as the era of low-interest rates which encouraged investors to take risky bets comes to an end.

Some market watchers say the influence of NFTs on the art market will shrink. Meanwhile, even though the much-hyped vision for a blockchain-based metaverse hasn’t materialised yet, enthusiasts expect NFTs to shake up the gaming industry, for example by allowing players to own in-game assets such as avatar skins.

“Everyone believes games are going to be the next big thing in blockchain,” said Modesta Masoit, chief financial officer at blockchain tracker DappRadar.

This risky combination of gaming and financial speculation may face difficulties, though. Most gamers prefer games which do not include NFTs or “play-to-earn” components, according to John Egan, CEO of technology research firm L’Atelier.

Although the groundbreaking new crypto regulations agreed by the European Union last week mostly excluded NFTs, Spain is separately seeking to clamp down on the way video games sell virtual assets for real money.

Meanwhile, the biggest NFT-based game, Axie Infinity, has seen its in-game token collapse to less than half a cent, down from a peak of 36 cents last year.

For L’Atelier’s Egan, the NFT market is unlikely to recover in its current form.

“Ultimately it’s a situation where extraordinary amounts of money are being paid for extraordinarily limited assets that don’t really produce any cash flow,” he said.

But the underlying concept of creating unique digital assets is still “fundamentally important” and will have “massive applications” for the financial sector in future, he said.

© Thomson Reuters 2022

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India’s Cryptocurrency Position Said to Be Vindicated Amid Global Crypto Market Downturn

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By ANI | Updated: 5 July 2022

India’s conservative position on not encouraging cryptocurrency is being rapidly vindicated by the negative experiences of various crypto funds with the latest being Singapore’s Three Arrows crypto fund. Experts say that India correctly predicted the adverse economic headwinds and perhaps saved a lot of people from economic ruin.

Last week, Singapore-based crypto hedge fund, Three Arrows Capital (3AC), was reported by various media sources to be in trouble. It is one of the high-profile crypto investment firms that has run into difficulties recently as the crypto market valuation plunged.

It has fallen by about a third since it hit its peak sometime in November last year.

In the latest sign of the impact of the crypto market downturn, both Bloomberg and Reuters quoted sources that said that 3AC has entered liquidation after failing to make payments on a loan of 15,250 Bitcoins (approximately Rs. 16,35,165) and $350 million (roughly 2,800 crore) worth of USDC, a stablecoin.

Reuters reported that its sources told it that a court in the British Virgin Islands, where 3AC’s fund is incorporated, issued the liquidation order on June 27. The Commercial Court there orders a company to be liquidated if it is regarded as insolvent because it cannot pay its debts.

It is less common for companies to voluntarily liquidate.

3AC, one of crypto’s best-known hedge funds was founded by former Credit Suisse traders Zhu Su, a Singaporean, and Kyle Davies at the kitchen table of their apartment in 2012. Zhu famously predicted the bottom of the last crypto cycle in December 2018 when Bitcoin was worth about $3,850 (roughly Rs. 3,05,000).

According to blockchain analytics firm Nansen, its blockchain holdings were once worth close to $10 billion (roughly Rs. 79,100 crore).

To add to its troubles, Singapore central bank, the Monetary Authority of Singapore (MAS) last week reprimanded 3AC for breaching financial regulations.

On the other hand, the Indian regulators had attempted to ban cryptocurrencies only to be overturned by the Supreme Court.

To dampen crypto trading, a one per cent tax deducted at source (TDS) on crypto transactions kicked in on July 1. The one per cent TDS liability is the second major provision of India’s recently introduced crypto tax law after a 30 percent capital gains tax on all transactions took effect on April 1.

India’s crypto community has been up in arms over the new provisions and warned that it will have a severely negative impact on crypto trading in India, especially with the global market slump.

Sumit Gupta, co-founder and CEO at CoinDCX, tweeted that this tax “would do more harm than good.” He said developers and entrepreneurs might flee to friendlier jurisdictions and added that a 30 per cent taxation rate coupled with one per cent TDS is “unfair.”

The Indian government has been very careful not to legitimise crypto trading. It says that they are taxing crypto because people are profiting from it.

“We have been cautioning against crypto and look at what has happened to the crypto market now,” said Reserve Bank of India (RBI) Governor Shaktikanta Das in a CNBC-TV18 interview earlier this year after the value of cryptocurrencies took a tumble. He had warned about the dangers of investing in something that has no underlying value. “Our position remains very clear, it will seriously undermine the monetary, financial and macroeconomic stability of India.”

According to CoinGecko, the total market cap of cryptocurrencies has shrunk by more than a third, down to around $930 billion (roughly 74 lakh crore) from a high of about $3 trillion (roughly 240 lakh crore) reached in November of 2021.

Although the crypto market has been on the decline this year, there isn’t a specific reason for this. Analysts have suggested that the wider global economic situation of higher interest rates, and a looming recession, coupled with investors’ lower risk appetite has caused the decline.

This has caused various calamities in the market. Some believe a crypto winter has arrived. Besides 3AC, among the recent disasters is the collapse of terra USDC and sister coin Luna, and liquidity issues at lenders Celsius Network and Babel Finance. Earlier, crypto lender BlockFi and prime brokerage Genesis said they had to liquidate one of their large counterparties recently. In June, crypto giant Coinbase slashed 1,100 jobs. Crypto broker Voyager Digital, reportedly the party behind the default notice served on 3AC, has also been impacted.

“I think given this price drop, from the all-time high of $68,000 (roughly Rs. 54,00,000) to $20,000 (roughly Rs. 16,00,000) now, it will probably take a while to get back. It probably will take a few months or a couple of years,” Changpeng Zhao, the founder of the world’s largest crypto exchange, Binance, told The Guardian. He added that bitcoin may take years to recover from the recent crash.

However, other market participants remain bullish over crypto’s future.

“What I expect from bitcoin is volatility short-term and growth long-term,” said Kiana Danial, founder of Invest Diva and author of Cryptocurrency Investing For Dummies.

PricewaterhouseCoopers’ fourth annual global crypto hedge fund report published in June showed that although the crypto market is bearish now, 35 percent of fund managers in its survey predicted that Bitcoin will be trading over $50,000 (roughly Rs. 40,00,000) by the end of 2022 and a further 42 percent forecast that it will trade between $75,000 (roughly Rs. 60,00,000) to $100,000 (roughly Rs. 80,00,000) by the year’s end.

JPMorgan Chase believes that the current phase of cryptocurrency deleveraging will not last much longer. In a note published on June 29, it supported this prognosis by saying that it has been observed that “crypto entities with the stronger balance sheets are currently stepping in to help contain the contagion.” It has also been noticed that venture capital funding which is “an important source of capital for the crypto ecosystem, continued at a healthy pace in May and June.”

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Crypto Lender Voyager Digital Suspends Withdrawals, Trading, Deposits to Its Platform

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By Reuters | Updated: 2 July 2022

Crypto lender Voyager Digital said on Friday it has suspended withdrawals, trading and deposits to its platform and said it is exploring strategic alternatives to preserve the value of its platform.

The move comes days after the company issued a default notice to embattled hedge fund Three Arrows Capital (3AC) for the fund’s failure to make required payments on a loan.

In a statement, Voyager chief executive Stephen Ehrlich said the move gives the company “additional time to continue exploring strategic alternatives with various interested parties” while preserving the value of the platform.

Voyager said in a release that it had hired Moelis & Company and the Consello Group as financial advisors, and Kirkland & Ellis as legal advisors “to support its exploration of strategic alternatives.”

On June 22, Voyager signed an agreement with Alameda Ventures for a revolving line of credit, gaining access to additional capital to meet its customers’ liquidity needs as crypto prices take a hit.

In a release, New Jersey-based Voyager said the value of the crypto assets it holds is $685 million (roughly Rs. 5,408 crore), compared with the more than $1.12 billion (roughly Rs. 8,842 crore) in crypto assets it had loaned.

Voyager said it had lent $350 million (roughly Rs. 2,763 crore) and 15,250 Bitcoins to 3AC. A person familiar with the matter told Reuters on Wednesday that 3AC has entered liquidation.

The move by Voyager comes less than a month after rival crypto lender Celsius Network suspended withdrawals, citing extreme market conditions. Celsius has not yet opened withdrawals back up for its customers.

Many of the crypto industry’s recent problems can be traced back to the spectacular collapse of so-called stablecoin TerraUSD in May, which saw the stablecoin lose almost all its value, along with its paired token.

Bitcoin, the largest and most well-known cryptocurrency, is down 58 percent in the first six months of 2022, its worst first half of year showing ever.

© Thomson Reuters 2022

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Cryptocurrency Lending Giants Face Financial Ruin Amid Market Uncertainty, Lack of Regulatory Guardrails

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 By Agence France-Presse | Updated: 1 July 2022

Starting with the lofty goal of competing with traditional banks, cryptocurrency lending giants and their clients now face financial ruin due to their appetite for risk and a paucity of regulatory guardrails.

Celsius Network, which suspended withdrawals in mid-June, had advertised a seemingly difficult-to-reconcile mix of interest rates, charging just 0.1 percent for loans, but paying more than 18 percent on deposits.

Weeks later, savings accounts, that amounted to $11.8 billion (roughly Rs. 93,300 crore) in mid-May, remained frozen.

“Celsius is going bankrupt one way or another,” said Omid Malekan, a professor at Columbia University. “Even if they recoup 98 cents on the dollar for their depositors, no one would ever want to use it.”

Since then, other operators have faced a similar fate, from CoinFlex to Babel Finance, which also tried their hand at lending and had to freeze withdrawals, while Voyager Digital had to limit them.

These platforms allowed clients to deposit cryptocurrencies, and either receive interest or borrow digital money by using their savings as collateral.

“It’s a real shame things got to this point,” said one Celsius user contacted on the Reddit platform, who claimed to have over $350,000 (roughly Rs. 2.7 crore) tied up on with the lender.

“Clearly Celsius should have planned for this kind of scenario,” the user added, speaking on condition of anonymity.

The devastating sequence started with the sharp decline of cryptocurrencies, including Bitcoin which lost nearly 60 percent of its value in the past six months.

The plummeting value – which dropped as global inflation accelerated and Russia’s invasion of Ukraine rattled the world economy – led to a chain reaction and forced borrowers to provide new financial guarantees or immediately repay loans.

Some borrowers, such as the Singaporean investment firm Three Arrows Capital which is now in liquidation, could not provide the creditors enough cash to cover withdrawals and froze client accounts.

“The majority of these companies had provided uncollateralised or undercollateralised loans,” said Antoni Trenchev, co-founder of Nexo, another crypto platform that he said avoided trouble by following a stricter lending policy and “prudent risk management.”

Unlike banks, these lenders were not required to hold cash in reserve against bad loans.

‘Deep need for regulation’

A handful US states have opened or expanded investigations into Celsius, and some, including Alabama, last year ordered the platform to stop lending to their residents.

“I do expect there to be a very strong crackdown across the board,” Malekan said. “There’s a lot of fodder there for governments to go after.”

Despite the turbulence, most observers expect cryptocurrencies to recover from the current lending trouble and don’t believe this spells an end for loans in the sector.

“It’s not the worst crisis crypto has had,” said Charles Jansen at S&P Global Ratings.

Malekan said the situation offers an opportunity to weed out weaker firms.

“During a bear market, you learn which were the projects that have a core value proposition and solve an actual problem, versus which are the ones that were just a pipe dream.”

Some, like Trenchev, expect a major consolidation in the sector with healthy operators gobbling up those that are struggling.

The episode also has raised awareness of the risks of a lack of government oversight.

“There is a deep need for regulation, which is something that everybody in the field agrees on,” said Jansen, whose company is vying to be recognised as risk assessor in the crypto world.

In the absence of a specific regulatory framework market watchdog, the Securities and Exchange Commission, has been taking the lead but largely with punitive steps.

Several bills have been introduced in the US Congress in recent months that aim to address the need for closer oversight, but a bipartisan Senate proposal from Republican Cynthia Lummis and Democrat Kirsten Gillibrand has been gaining momentum.

The bill has been well received by the crypto community, especially because it empowers the sector’s preferred regulator, the Commodity Futures Trading Commission, over the SEC.

Some critics see the proposal as too accommodating.

“It’s bipartisan in the sense that senators from different parties are giving the crypto industry pretty much what it wants,” tweeted Hilary Allen, a professor at American University’s Washington College of Law.

“It gives most jurisdiction over crypto assets to the CFTC, which has no investor protection mandate and far fewer resources than the SEC,” she added.

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