Investors in a quandary as cryptos crash

Crypto crash is brutal. Especially, the decimation of Lune, a sister cryptocurrency of TerraUSD, has made headlines the world over. It has also inspired many memes that question the viability of the cryptocurrency ecosystem. In the last few days, Luna's value has dropped by more than 80 per cent, leading to massive erosion of investors' wealth. Such phenomenon has created fear among most bullish crypto investors who have been advocating cryptocurrency as the future of global payment system. No doubt, broader crypto markets, including most popular digital currencies like Bitcoin and Ethereum, have also lost value.

While there are many schools of thoughts on the reasons for such a crash, one thing that has emerged is that the segments that use blockchain ecosystem have taken a huge beating in recent months. The backbone of cryptocurrencies is made of blockchain-powered system. Distributed ledger and recording of transactions has been facilitated by blockchain-driven solutions. So, any beating of crypto ecosystem will definitely affect developers focussed on providing blockchain-based solutions. There are many startups, crypto exchanges and fintechs that design, develop and implement these solutions. It will be interesting how these startups perform if the slump in crypto market continues.

Not only cryptocurrencies, but another blockchain-based digital asset – NFTs (non-fungible tokens) – may be in for loss of investors' interest as global uncertainty over high inflation and geopolitical turmoil continues. NFTs have been very popular in the recent years and many see them as the true testimony of Web 3.0. Reports suggest that total NFT transaction activity went down from $3.9 billion to $964 million between February and March. "That speculation isn't limited to cryptocurrencies. Both NFTs and digital real estate in the metaverse have been just as vulnerable to speculation. And that raises concerns for both," Morgan Stanley said in a recent note. So, the risks for all digital assets that have emerged as the Web 3.0 movement are real.

This takes us to the question of what will be the fate of metaverse if such volatility continues? Nobody has an answer yet. Metaverse has already seen rising adoption among users in recent years. Global consulting major Gartner has predicted that by 2026, 25 per cent of people will spend at least one hour a day for work, shopping, education, social media, and entertainment in the metaverse. Most IT services companies and startups have come with specific metaverse suite that will facilitate such transition. But if the routs in digital assets continue across the world, spending on such emerging technology areas is likely to be slashed. We have seen rising fund flow to digital assets-based companies like crypto exchanges, NFT-creators and supporting technology providers from venture capital and private equity funds. Current crash and subsequent investors' worry don't augur well for the whole ecosystem.

India has seen the user base of both cryptos and NFTs rise in the last few years. Especially, crypto adoption has been huge with even people in hinterland participating in such digital assets. It is, therefore, vital that the interest of such investors should be protected through education and awareness, sans any existing regulations.