Blockchain Technology: Prospects and Challenges

Risks involved in investment in cryptocurrencies

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Changing patterns in saving and investment

Context

We are witnessing the change where the cult of savers has changed into investors. They are looking for a good return and willing to take the risk.

Changing the behaviour of the savers

  • There is a new wave of savings and investments in the country that is evolving quite fast.
  • Crypto exchanges assure you that they are safe.
  • But it is the exchange that is safe, not the value of the coin, which will be driven by the market.
  • The equity boom is on, and all the unicorns have delivered excellent results.
  • That’s why bank deposits are no longer on our plates.
  • Banks discouraging deposits: Interestingly, banks today are discouraging deposits with low rates as this is the only way they can manage their balance sheets.
  • Low-interest rate: There are few deployment avenues and paying 5 per cent interest to savers and investing the deposits at 3.35 per cent in the reverse repo auction is a sub-optimal game.

How safe is investment in cryptocurrencies?

  • From equities, there has been a swift shift to cryptos, which is still a grey area.
  • The regulators/government are wondering what to do. The issue will be discussed in the winter session of Parliament.
  • But investments have been made and there is no stopping this global wave.
  • Currency with no underlying asset: Making money on a currency that has no underlying asset like a metal or other currency and is traded on faith is unique; especially Bitcoin, whose originator is not known by face but by just a name.

Gaming as a skill

  • There is another door to a new kind of gaming where you make money by making teams and following the matches.
  • The law was first silent, and then confused.
  • But it finally accepted gaming as a skill.
  • Logically, soon we should be able to bet on matches too, if all this is in order.

Conclusion

We are witnessing a change in the pattern of holding onto money, where savings get transformed to investment and risk appetite changes from conservative to aggressive. Will this change? Probably not, in the near future, as long as conventional deposits continue to give inferior returns.

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