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Recent data points to a worsening current account deficit (CAD) situation for India, where the CAD is the highest since FY 2012-13. Higher imports of oil and gold have led to the USD-INR exchange rate crossing the 70 mark for the first time ever. In fact, despite the strong bull run of indices such as Sensex and Nifty, Indian equities are actually underperforming even developed Asian peers like Japan and Singapore. This implies a marked reduction in the purchasing power of Indians who hold INR denominated assets such as government debt and equities.
In the past 5 years, USDINR has declined from 61 to 70, marking a depreciation of almost 15%.
Over the same time frame, however, cryptocurrencies such as Bitcoin, have gone from ~$100/BTC to currently ~$6400.
The data speaks for itself. Smart investors definitely need to consider moving away from portfolios that are predominantly INR denominated, and diversify into a broader range of assets. Yet, it is very often cumbersome for retail investors to actively invest in and manage a global portfolio of assets.
Indians have traditionally held gold as a safe investment for centuries. However, gold is difficult to purchase and hold in large quantities. Bitcoin (as well as other cryptocurrencies) provides an alternative safe asset which can be easily bought, sold and held. Bitcoin is often called “digital gold” due to its scarcity value and, as shown above, is fast getting mainstream attention as a store of value asset. Further, since the USD is the primary currency of trading bitcoins, holding bitcoins also gives exposure to a strengthening dollar.
Globally, even institutional investors are now entering cryptocurrency markets, led by large family offices such as Soros and Rothschild. The ‘anti-fragile’ nature of cryptocurrencies make them an attractive store of value, since they cannot be easily manipulated by governments and powerful leaders, as has been happening in, most recently, in countries such as Turkey, and has earlier happened in numerous regimes such as Argentina, Brazil, Venezuela, Russia, and even India, when the demonetization happened.
Crypto markets are relatively more stable today after the roller coaster ride earlier this week. 7 of the top 10 cryptocurrencies are in the red. BTC, at $6,403, lost 0.77% while ETH, at $291.14 recovered another 1.77% after recovering a large part of the fall in its price earlier. Ethereum Classic was the best performing currency, gaining 15.83% while Stellar lost 5.18% in the past 24 hours.
Data sourced from OnChainFX.com.
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