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How would you explain the rise of cryptocurrency over the last few years? Is it because of its decentralised nature? Or because of blockchain? It also presents a fantastic investment opportunity which has contributed to its popularity. What do you think?


So maybe I’ll take this, there are two angles, I see this cryptocurrency rise from, one, is the increase in the usage of the crypto currencies and blockchain technology itself. And second is the rise in the prices I mean, people generally track try to track the rise in prices a lot more. But they’re slightly different things. I mean, they do go hand in hand, but they are different things. So in terms of the increase in usage, of course, you can also add in more here that we had Bitcoin. After that, we had Ethereum; Ethereum, introduced the concept of smart contracts, which allowed people to do a lot more things, and over the last few years DeFi has developed. 

So this is where the usage is increasing, more and more people are starting to use crypto currencies to do things to you know, create protocols to do sort of banking on cryptocurrency. So that has been the rise in usage. But the caveat is there, the real world impact is still limited on this one. So generally, most of this happens within the crypto universe itself. But it’s evolving. So the tools are being developed, and maybe it will, if things go as the crypto universe is planning, they would like to impact the real world as well. But the price is slightly different. So that, like you say there isn’t a fundamental valuation for crypto currencies, not easy to do that this, say this is the revenue stream from these things doesn’t possible. What actually drives prices? 

In my experience, what I’ve learned from my research is, it’s a question of supply and demand, who are the people who are selling? Who are the people who are buying? So there’s a big hardcore group of people, we call them Hoddlers.

So they just hold they just keep buying, they keep putting their savings so they are the foundation. They keep buying and keep the buy pressure. The sell pressure comes from people like miners, they do mining, they are a business operation. So when they do mining, they get the cryptocurrency, they have to sell the cryptocurrency in order to get the cash and support the business. So, they will have a constant supply in between you end up having other people who do things for speculative purposes. 

So they are volatile, and they sort of also cause volatility. So, if you see the last two cycles, right, the last two cycles happened roughly within a year or two of something called a halving event. So what happens is every few years, Bitcoin reduces the amount of rewards they give to miners. So, last one was in 2016, which after a year or so, accumulated in the last bubble last peak. 

So, what happens is if you are reducing the amount of crypto currencies you give minus the amount they have to sell has reduced and all else equal if everything else is equal, this just means that the amount of Bitcoin available to sell reduces so over time the price slowly creeps up. Now, once the slower increase in price, of course, people then pile in everybody start saying, oh, Bitcoin is rising, Bitcoin is rising, and then they start piling and piling and piling in, that’s where the bubble tends to start to build up, it builds up to a peak or a crazy level and eventually it falls down. 

But if you notice, the price at which it falls down to is not the price at which it started off pre the journey so that increase is still there, because the supply and demand sort of net out at that level. Same thing so another halving event happened 2020 for Bitcoin, and then it went up. And it’s generally if you track the prices, you will see that there is a high correlation between Bitcoin and other crypto currencies as well. So typically Bitcoin tends to go up and then the other currencies as well go up in line. So the prices is more driven by this supply and demand thing. And you know, it’s not like suddenly in the year 2017 or 2021, suddenly there was a big surge in usage of, it’s not like that it’s more driven by the supply and demand.


I don’t know if I can add some context to what you just said.  You need to think of cryptocurrency as it is today, to be a payment for a service that certain computers provide you the world over right, and this payment has not yet breached the real world value. And the moment it does that the use for the payment, the token that you’re paying with, it suddenly increases. Think of it as a receipt, right? If somebody is providing the service, you are giving him a receipt saying yes, you have provided the service for that cryptocurrency. There are different types, of course, but I’m just giving you an example of one. And the moment that receipt has a valid acknowledgement in the real world. The game completely changed and that did not happen yesterday.

And and this time around, of course, the bubble was also helped by the amazing amount of liquidity in the world right now.

NFTs have opened up a new paradigm for artists in terms of how they ensure that royalties are paid and clarify ownership. One of the most high-profile NFT sales resulted in being the 4th most expensive piece of artwork sold by a living artist. 

What is your analysis of NFTs in terms of its influence on the art world and in terms of the NFTs as an investment? Are we in a bubble right now or is this a sign of more things to come?


Unlike the finance world, when you say bubble you mean that it is beyond rational expectation of return. In the art world, there is no meaning to bubble. I mean, you could say there is a bubble, somebody might beg to differ, right? Let’s say somebody is buying a piece of art, because it means a lot to him, it you know, sort of appeals to him and his you know, his background and where he comes from, and it doesn’t appeal to you or someone else, it does not mean that it’s a rational reason for that. And there is no explanation for those things, it’s a matter of the heart.  Now you need to think of NFTs, something to sort of, it’s a, it’s like a validated ownership of digital assets. Let me give you an example. Let’s say, you want to gift me a song by my favorite singer, let’s say Roger, or someone, and you get Roger to record it, and you give it to me, right? You send it to me as my birthday gift. Now, I could forward it, or you could send it to 10 other people, it would not be unique, right. 

But if you want to really make it unique, you can sign it digitally and say that this is an NFT token. Only the person who owns this can actually sort of claim ownership over this, I could share it with others, maybe I could put it up on a site and others could enjoy it. But it would be mine. And I can prove ownership of it. Right? This is NFT, it allows you to claim digital ownership, which so far was absent, it is enabling a new thing to happen. So to think of NFT, as art only is also sort of invalid in the sense that it encompasses a wide variety of things. Let’s take the example of gaming. I don’t know if you are aware of this, but the gaming industry is still nascent in India, but worldwide it is I think, some $160 billion worth. And even in India, if you’re clued into the gaming space, you realize that teenagers, engineering kids, kids who have just passed out and during their jobs, spend a lot of money in games, and in games, they purchase items, which they can claim ownership over.

This is actually NFT it’s the primitive NFT, now, if you add on top of this, the ability to sell it, transfer it the ability to make unique changes to it, then it becomes a very rich digital asset. And you know, this layer around it will be called an industry. 

Now, it will not mean much to somebody outside. But in the gaming world that is of tremendous potential. Right? So NFT has two potential applications, one in the art and this one and the second in gaming. The third that using it in ticketing, that’s also a very important application, right? 

Let’s assume that you are creating, you’re starting an event, you have no clue how well it will sell, you price it at a certain price and you sort of give out the tickets, people buy it, but then the demand for the particular artists or whatever the event is goes through the roof, the price might double, become 10 times you know, people call it selling in Black Market, it might sort of increase. Now, if you had sold these tickets on NFT you can claim a portion of the game. You do not need to let it go. So, you can say that you know 20% of any sale that happens subsequently I need to get out 50% I need to get out maybe 90%, it could be possible. 

The moment you make it uniquely identifiable and then somebody can claim ownership of it. You can do all these things. Transferring of NFT’s then becomes a very recognizable event and at the time of the transfer they will have to be right. I mean there are workarounds and there are a lot of other implications. This is still nascent, still working these things out. But you can claim benefit even after the sale. Like let’s say the original artist created a painting and sold it. But while selling he informed the buyer that any future sale, I need a claim on the sale, the same thing is possible for music artists, it gives tremendous power. On the flip side, there’s another way this NFT things have sort of improved the blockchain technologies, improve the lives of artists, anybody can go to an open platform and say publish their work. And if they have fans who are like maybe an author, maybe a singer, maybe a painter, whoever it is, they can fund his work, right? 

Those who really believe the core people who really believe in that person, can fund his work. And later when there is a reward for that they can also participate, not just the artist, the people who early on supported that person, they can also benefit from the rise of the artist. All of these things are possible.

Blockchain technology, as we know, has a number of use cases that could radically change the way many industries work. We are already seeing it being in use in the healthcare and financial services industries. Which industry do you think will adopt it next? Or which industry do you think blockchain has the most potential for?


In terms of it, they intertwine the original thinking, like programmable value, which means it was designed for financial services becoming more decentralized. That is the origin for the programmer value. For instance, if you see information, when I send an email to you, it reaches you instantly. But if I have to send money to someone in the other part of the world, it takes some time, the information is pretty fast, thanks to the internet. But value as in money in this case doesn’t move as fast. Can we do something about that? That’s the foundational thinking behind Bitcoin, ethereum. From the developer community programmable value. Hence, a substantial amount of its efforts will be in financial services, and its impact on the rest of the world. So even NFT is in an indirect way. 

It is about having financials having an impact on gaming and other industries. That’s been the foundation of what’s happening of length is the idea of decentralized, it turns out, you can explore any industry with a significant amount of market concentration. For instance, in the advertising industry, digital advertising displays a significant wealth concentrated in the hands of one source. And hence, you can imagine, consumers and businesses which engage with Google may not be getting the best deal right now. Concrete housing for seniors. Can you apply blockchain to decentralize water? Yes, turns out there’s a basic attention token, which decentralizes Google search and Google’s advertising business and Basic attention token is worth hundreds of billions of dollars, and it has pretty significant credibility. So that is the advertising industry. Another bunch of people are figuring out how to decentralize domain name registration. Now, this, this seems esoteric, but let’s think about it in the United States. Something interesting happened in January, the technology industry, all of them came together. 

And they said, citizens of United States cannot access this website called Parler. Now, Parler was this, you know, news, a social network, you could you could have your ideological views about whether it’s good or bad. But the technology came together and said, you cannot access this particular service. Right. So we are under estimating the amount of concentration or power industry already has in allowing access to some to some people in the world, right? There’s no law that says you should not have access to this, there’s no court order nothing. They said, We don’t like this. That’s roughly what they say. Now, every layer in the technology stack that enabled that is potentially different. So for instance, currently, a different type of website. It’s typically it’s hosted on something like GoDaddy.

And GoDaddy can be controlled by some ideological entity to say this, a lot of people sometimes make dumb decisions, right? This happened once. Now. If you do this on a decentralized domain name service. No one can say I cannot post this as always available. No one can disable access to them and say that is possible for a free speech offer for content. Right. And so that’s, that’s the media industry, and more. Now, let’s look at the content industry and a more interesting version of the entire blockchain business. So there are people who are trying to make a movie about ethereum’s rise, right? Guess who’s getting financed, it is not getting financed by you know, the Hollywood studios, it is getting financed by crowdfunding campaigns, and people who are willing to put some of their ethereum earnings into funding this movie. So they’re the capital raising for movie itself is basically built on blockchain in that model. Right. So this is different now because it’s calculated for movies. Then journalist investing, he or she said that I want some money to go do investigative journalism on this particular theme. And he or she put it on  the internet. And people said, let me fund this.

So serious crowdfunding, and we knew that we could trust that because you know, the person is going to deposit that work for their credibility over there. So this journalism being funded, funded by pioneers from leading crowdfunding sources, This is all in the space of content and advertising. Can commerce get decent? Potentially possible? We’ve seen a couple of examples. It’s been possible, we’ll have a decent price. Excellent. Well, but perhaps it’s kind of early, too early for us to say concrete examples. Communication. Yes. So there’s this company called Big Cloud, Big Cloud, a way to think about it is like its basically decentralized Twitter. So apparently, Twitter can get rid of Donald Trump, right? The most powerful man in the world. But Twitter has even more power to get rid of him from the left side, right. So that’s kind of centralization, and the cloud, you cannot get $1 from whoever you don’t like. 

So that contains communication and commerce, and then financial services. And we already covered gaming, and so on and so forth. And it used to be I think, was like manner where there is some centralization leading to terrible outcomes for end users. It will have a blockcahin basis. We’ll all have them out to be as big as that which may seem simplistic, and either centralization of power leading to consumers or citizens will have a blockchain

We are now seeing the Indian crypto space develop with local exchanges gaining prominence. What is the potential for cryptocurrency in India? How big do you think the market is and how much of it depends on the government’s stance?


So I think the government is trying to, I assume you’re talking about the Indian cryptocurrency market as the investor, investing, of all the new retail investors putting money in that. So the government has a view that blockchain technology is useful, speculative cryptocurrency is not. That is something that they have been talking about, while the entire investments in 2020 was, Chain Analysis claimed that it is about $40 billion dollars, it’s it’s hard to estimate investments in this space. 

They have some methods of doing it, but it’s very, you know, sort of rough kind of methods, but they think it’s about $40 billion, the cryptocurrency market itself. Forget the cryptocurrency market, let’s talk about the blockchain market, it would, it would revolutionize logistics, it would revolutionize art. 

It would revolutionize gaming. It would revolutionize media. It has so many applications, the potential is limitless, right to estimate the size of the industry, we need to get into some really big numbers.

Now, those are what is relevant and people should be focusing and the government should be focusing and encouraging and the government has to try and enable this.

A lot of this and all the startups should give, you know, some sort of a platform, some sort of incentive to do this out of India because worldwide we are seeing, you know, even in the US in many other countries, governments are taking a very non-nuanced stand on this, right. Cryptocurrency is bad, let’s ban it, or let’s ask them to follow the rules of listed stock markets, or listed exchange. You need to come up with new rules, which are in sync, and which are appropriate to the sector. If the Indian government can steal a march on the other governments and do this, there’s a huge value to be captured. Right, in the in it itself, in the providing the IT Service and the IT products says there’s a huge value to be captured. And then of course, the benefit of implementing that across the different sectors, the efficiencies that it will unlock nothing.

We saw the value of cryptos go through the roof over the pandemic, largely because people were using it as a hedge against inflation. The market has settled down now a bit. When do you see the next opportunity present itself to investors? Or in other words, what are you on the lookout for?


Okay, To start off with, I’m not sure it was exactly as a hedge for investors. Like I started out saying, right, the price of cryptocurrency is a function of supply and demand. It roughly seems to correlate with this halving events this time around, it was helped by the this splurging liquidity, so it might be more appropriate to think of it as a risk on sentiment. So every asset class in the world exploded. Right? So stock markets have amazing valuations right now, which many people will believe are unrealistic as well. So that’s something similar has carried over into the crypto world as well, because of the unprecedented liquidity that the central banks have pumped in, which was needed because of the pandemic. 

Okay. So when would it come again, like I said, right, whenever halving event happens, something comes through. But I would also like to point out that the share or the presence of Bitcoin as bigger, as as the percentage of the whole crypto universe is sort of reducing, Ethereum is becoming bigger and bigger. So the dynamics will slightly change as we’re going forward. So for example, even now, Ethereum is making some changes to its protocol, which would reduce the supply the plan to burn some of the Ethereum because of this, so that already could, okay, all else equal, that could trigger a slight upward pressure. 

Now, I don’t want to say this is the only trigger upfront, because there are so many other factors right, if central banks withdraw liquidity and start tapering the impact of that will be higher than the impact of the reduced supply from Ethereum. So you need to consider those two in aspect, but this is how it will play out, we need to see what are the supply side changes? The second factor, of course, depends in the next one or two years on how the regulations pan out. I think all the regulators have woken up and realize that Bitcoin, cryptocurrency is big, we can no longer ignore it, because it is starting to slightly become mainstream, like banks are starting to offer ETFs on it or give it to their investors, so on and so forth, right. So, some of the mainstream finance is starting to look at crypto currencies as a source of investment. 

So regulators are now saying, okay, since  banks are looking at this let us also put down the regulations clearly and be that would be the key driver, I guess, how like Harsha said, Will the regulations pan out? Will they sort of take a bit of a sledgehammer approach then this will be bad for cryptocurrency? Of course, if they take a little more new and stance that will be good as well. So that could be the next, you know, turning point when when regulations clarify and how friendly they are?

So I mean, with respect to what we saw with the pandemic, do you think there’s any sort of correlation between financial crisis and a rise in value of crypto currencies?


So I think you’re looking at whether this is a haven currency right. So, generally, when crisis happen, people move to safe haven currencies like USD or gold or so on and so forth. I don’t think crypto currencies are a safe haven currency by any stretch of the imagination that I mean, they are one of the most volatile asset classes, they do seem to benefit from global liquidity. So, a surge of liquidity which goes into all risk classes, stocks, bonds, everything, the prices have all gone through the roof. So that would also flow into crypto currencies. If you have a lot of risk appetite go and buy crypto currencies. That’s, that’s the way I see it. And that’s how it seems to correlate in this particular pandemic as well.


The other thing is all crypto currencies are not equal. It’s not like, it’s not like saying the stock market will go up. This law will go up, the liquid liquidity and all those things that are just talking about those things will still behave like this market. But if you look at individual cryptocurrency, each dog will have its day in the sense supposing some new application or some new developments happen in a particular space. And if some companies adopt it, one cryptocurrency might see a 10x or 20x. So if you’re looking at speculating on crypto currencies you’ll need to be clued into the technology developments in that space. Rather than saying that, you know, let me bet on macroeconomic events, the macroeconomic events will give you returns, but it will not give you crypto returns, right? 

The crypto returns that everybody speaks about is like the 100x 50x 20x I don’t know whatever number right. And for that you need to be really clued into the space, not all of them will see the same kind of growth, Bitcoin is not going to give you a 20x anymore, so I’m assuming so it’s highly unlikely that that will happen. And if you really want those kind of returns, you need to bet on those which are making a difference, which are creating that online, offline bridge, not the real world. And you need to find out those that are making the lives of people better.

For feedback write to pavan@bclindia.in

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