There was no cheer for cryptocurrency investors in the New Year with most cryptos tumbling sharply over the past week. The FOMC minutes that revealed that not only will interest rates begin rising soon but the Fed will also begin shrinking its balance sheet in 2022 came as a shocker to investors. These actions will result in making the cost of borrowing move higher, affecting those indulging in leveraged trades. Also the amount of surplus available in the financial markets would shrink going ahead.
Bitcoin prices moved up to $47,733 on January 1, 2022 but slipped thereafter to end at $42,394 on Friday, losing almost 11 per cent. The level around $42,000 is an important support for the cryptocurrency. Breach of this level will drag bitcoin to the July 2021 low of $31,500. This will be the last bastion for bitcoins. If this level is breached, it can slide all the way down to $17,000 or even $11,000. Such volatility is however quite common in these assets since they are mostly driven by demand.
There was a slew of negative news hitting cryptocurrencies last week. The tax men have become vigilant about the activities on the crypto trading exchanges, launching a series of raids on exchanges including CoinDCX, BuyUCoin, Unocoin etc. The tax authorities demanded GST at the rate of 18 per cent on the commission charged by these exchanges. About Rs 30 crore was collected from these exchanges as tax dues, penalty and interest. Further, WazirX was told to shell out GST dues exceeding Rs 80 crore.
Taxmen may come knocking on the doors of more crypto exchanges
But the worst is not yet over for crypto trading ecosystem yet. The indirect tax authorities have cracked down on the trading platforms, but the government will have to decide on the manner in which the gains made by the investors trading on these exchanges need to be treated. If cryptocurrencies are to be treated as assets, then they will have to shell out capital gains tax on the gains made while trading on them. If the trading gain is treated as business income, then it can be treated at the corporate tax rate.
These issues will be decided in the eagerly awaited cryptocurrency bill which is likely to see the light of the day in the Budget session. But by the time the Bill is presented and passed, most investors are likely to have moved out of these assets due to the continuous slide in prices.
To add to the woes of the crypto world, cryptocurrency mining took a large hit this week due to internet shutdown in Kazhakhstan. Russia had sent in paratroopers in to the country to put down an uprising that has affected mining of cryptos. Kazakhstan has emerged as the second-largest hub for bitcoin mining after the US, according to the Cambridge Centre for Alternative Finance. The miners have shifted out of China after the country clamped down on mining as well as trading of cryptos last year.
Bitcoin network power slumps as Kazakhstan crackdown hits crypto miners
The other major news concerning cryptocurrencies is the launch of the cryptocurrency index IC15 which will track the movement of the 15 most traded cryptocurrencies listed on exchanges around the world. The index is touted as the best boon for cyptoverse since it will give out shoots in the form of crypto ETFs, funds and so on.
The moot question that remains is that if the transactions on all the crypto trading platforms is not yet labelled as legal, what good will an index tracking these price do. It will hardly help in giving legitimacy to these trades.
https://www.analyticsinsight.net/launch-of-first-cryptocurrency-index-in-india-ic15-by-cryptowire/