'Get-rich-quick' days over for crypto investors post relentless sell-off

A sharp fall in the price of Bitcoin and other cryptocurrencies is another hard blow to the already sinking cryptocurrency market in India.

Global and domestic prices have been on a downward trail since November last year when Bitcoin prices hit a peak of close to $68,000 in international markets. The recent past has seen a much sharper fall in the price of the leading cryptocurrency, Bitcoin.

Bitcoin price has fallen nearly 30 per cent in the past week, from around $30,000 levels. In the past month, the fall has been over 35 per cent. In the past two and six months, it is down 48 per cent and 58 per cent, respectively. Currently, Bitcoin is trading at around $21,100.

Nigam Arora, an algo trading advisor and author of the The Arora Report, says, “I expect bulls to buy and take a stand in the range of $20,000-21,000 in an attempt to run Bitcoin higher. In our analysis, there are many more margin calls ahead, if Bitcoin falls below $19,000. If these margin calls materialise, the next target zone is $15,000-16,000. It will all come down to how high the bulls can rally from here.”

Interestingly, Arora had said about a month ago that Bitcoin could fall to $21,000, when the cryptocurrency was trading at $31,280. The key reason behind his call was that MicroStrategy, a highly leveraged cryptocurrency investor firm, was a sitting duck because it would receive a margin call if Bitcoin were to fall below $21,000. MicroStrategy’s average cost was about $30,000.

Like Arora, other experts also believe that Bitcoin may find a bottom below $20,000. Thereafter, the market will be sideways for cryptocurrencies, and the ‘get-rich-quick’ days are over for investors. 

Rajagopal Menon, vice-president, WazirX, said, “Since the start of the year, markets have been weak due to uncertainties induced by global factors like the Russia-Ukraine war, persistently rising inflation, followed by interest-rate hikes and supply-chain disruptions. Few unforeseen events at a micro-level have also contributed to this fall.”

Last month’s fall was because of the crash of the Luna in particular and stablecoins in general.

On Sunday, leading global cryptocurrency lender, Celsius Network, paused all swaps, withdrawals, and transfers between accounts, citing extreme market conditions. Now, the company has appointed a financial restructuring attorney.

In yet another development on Wednesday morning, one of the most vocal participants of the cryptocurrency market, a large cryptocurrency hedge fund is rumoured to be facing a $400-million insolvency test. Market grapevine says the company’s investment was wiped out in Luna.

Sidharth Sogani, founder and chief executive officer, CREBACO Global, a cryptocurrency research and rating company, said, “With financial markets cracking worldwide, Bitcoin is no exception. I see its price finding support now, with a likely bottom around $20,000, and at worst, $18,000. But the overall market is in a bear cycle.”

Indian investors have been passive in the past three months, at least on Indian exchanges, given that volumes are down 90 per cent from peak levels. 

“In India, the volumes of various exchanges have dipped due to the implementation of the 30 per cent tax and the 1 per cent tax deducted at source. In addition, the hesitance from banks to partner cryptocurrency exchanges for deposits has contributed to the fall in trading volume as investors face problems with fiat deposits. Such a scenario will lead to significant drop in tax revenue,” said Menon.

After implementation of the new tax regime, the Indian cryptocurrency industry has been sinking. Several blockchain developers, entrepreneurs, and other ecosystem participants have been shifting their base to overseas markets. Most traders, who have been providing liquidity to the cryptocurrency market in India, have shut down business. Among them are a mix of Indian and overseas traders. Many were high networth traders, high-frequency traders, and liquidity providers. This is also a reason for the sharp fall in volume.

Most exchanges have started cutting costs, especially operating expenses. Barring a few top players, survival will be an issue for many.