It is only a matter of time before Indians get legal access to cryptocurrencies, says a recent report by HDFC Bank.

Currently, cryptocurrencies have a muddled status in India. While not being outright banned after the Supreme Court overturned the ban of decentralised currencies by RBI in March 2020, the Reserve Bank has informally asked financial institutions not to deal with cryptocurrency platforms.

However, the report titled ‘Cryptocurrencies: Fad or Forever?’ envisages cryptocurrency as a potential asset class that can be used to hedge against volatility in other major asset classes. The only dampener is that cryptocurrencies are incredibly prone to price movements of their own, due to retail and widespread interest, Mint reported quoting the findings of HDFC Bank.

“We find a positive correlation between gold and Bitcoin’s daily returns. Though the correlation was weak to start with, it has been rising. From a portfolio diversification perspective it has the properties of being a good hedge," the report added, according to the Mint.

With India’s potential Bill on regulating cryptocurrency and the possible issuance of a Central Bank Digital Currency (CBDC) by the RBI, there are expected channels for Indian investors to use cryptocurrencies in their own portfolio in the coming future. China’s Digital Yuan and Dubai’s DubaiCoin have become examples of CBDCs being released. The US, UK and EU are not planning to stay far behind on the race either.

There has been a significant increase in interest in cryptocurrencies, the report noted. Highlighting Bitcoin’s performance since 2015, a return of 10,869 percent, and the increasing number of non-zero balance Bitcoin addresses, 33 million in 2020 compared to 3.9 million in 2014, the report said, “This might suggest that the digital tokens are here to stay and are not going away in a hurry,” the research report mentioned.

Meanwhile, the central government is in the process of forming a committee of experts to oversee cryptocurrency trade in the country as it looks at possibilities to regulate the digital currency instead of banning it altogether.

(Edited by : Shoma)

First Published:May 28, 2021 9:12 PM IST