Ever since their debut, a decade back, cryptocurrencies have caught the fascination of a section of investors and traders, as this signaled the birth of a new asset class, and new currencies, something that doesn’t happen every day. Cryptos are now touted to be a store of value, a medium of exchange, widely recognised in a society, and finite in nature. Ironically, the traditional, central bank-issued currency is increasingly seen as not obeying these cardinal laws of currency, which is what is pulling the masses into cryptos. The below diagram depicts this conundrum.
Now, crypto markets have been a sea of red for the past few days, when most cryptos have about halved in value, including a gut-wrenching 30 per cent fall for the leading Crypto, Bitcoin, in a single day. Attributed to China’s ban on cryptos this week, as well as Elon Musk’s tweets regarding not accepting Bitcoin as a payment mode for Tesla car purchases, the fall has shaken the confidence of many in cryptos. In this situation, it is worth analysing what this means for three classes of investors: