Can you comprehend the alphanumeric string?
It’s the encrypted equivalent of the word ‘Bitcoin’ — the cryptocurrency that traded at $46,578 (₹35 lakh) per unit on December 20, translating into a global market cap of $881 billion. That’s 3.36 times the GDP of Pakistan, 2.72 times of Bangladesh and 10 times of Sri Lanka. Having started at $1 in 2009 at launch, Bitcoin remains by far the most expensive crypto in history. If an investor had invested $100 in Bitcoin in 2009, the investment would be worth $4.67 million today (equivalent of ₹35 crore)!
It’s this non-linear compounding that has spawned a 24-hour-open crypto bazaar teeming with over 15,700 currencies and a cumulative market cap of $2.37 trillion. It includes coins and tokens trading in cents and even smaller fractions.
Among all these, the top 10 cryptos that have cornered the attention of investors include Bitcoin, Ethereum, Cardano, Dogecoin, Litecoin, Bitcoin Cash, Filecoin, Ethereum Classic, Monero and Helium, accounting for $1.45-trillion market cap (See: The Top 100). India’s home-grown crypto exchanges together offer a basket of 500 currencies to choose from, according to Crebaco, a crypto research and analytics firm. Crypto investing began in India in 2013 when Bengaluru-based Unocoin became the first crypto exchange in the country.
Since 2013, cumulative investments made by Indians in cryptos stood at around $1 billion as of March 2020, and today it is worth close to $8 billion (₹60,000 crore), according to Crebaco. However, a clutch of leading exchanges in the country, including WazirX, ZebPay, CoinDCX, CoinSwitch Kuber and others, published an advertisement in a leading pink daily complying with the Blockchain and Cryptocurrency Committee of India’s self-regulatory code of conduct under the Internet and Mobile Association of India, stating that tens of millions of Indians have invested $80 billion (₹6 lakh crore) in crypto. Sidharth Sogani, founder and CEO, Crebaco, however, believes the number is inflated. “It has to be volume and not the value invested as the average investment of Indians is too low,” he adds.
Even as governments and central banks are still coming to terms with the enormity of digital assets, their returns have proved to be more than just an inflation beater. The year-to-date return of Bitcoin is 60.40%, head and shoulders above other asset classes, including real estate and gold (See: More than an inflation hedge).
In fact, the yellow metal — the traditional hedge against inflation — has lost its sheen during the year, delivering a negative 8% return. With central banks unleashing liquidity by slashing interest rates to near zero, money should have flown into gold. But it did not. Since the global financial crisis in 2008, central banks have pumped in over $25 trillion into the global economy with over $9 trillion in the pandemic period alone. But gold failed to sizzle as cryptos stole the show.
According to Morgan Stanley, gold’s market capitalisation has, historically, hovered around 5-15% of global GDP, rising to 10-15% post economic crises when demand for safe haven assets tends to increase and re-inflationary policies are employed. If Bitcoin, states the report, were to capture 50% of gold’s demand that is driven by its use as a store of value, its market cap could reach $6 trillion by 2025 — that’s over 2.5x the current market value.
And it’s not without reason. “In this inflationary period, Bitcoin has outperformed gold. Bitcoin and other digital currencies are widely regarded as a shield against inflation mainly because of its limited supply, which is not influenced by its price,” says Nigel Green, chief executive and founder of deVere Group, an independent financial advisory firm.
For instance, only 21 million units of Bitcoin are programmed to ever exist, unlike other digital currencies and tokens whose supply could increase based on demand and supply. Not surprising, it accounts for a chunk of the crypto market cap.
Beyond Bitcoin, the crypto basket has enough and more to offer — some promising, some duds.