Information asymmetry can lead to big losses for crypto investors
virtual digital assets (VDAs). One of the most popular uses of VDAs is for investments and trading which was boosted by the rapid appreciation in their value experienced in 2021. Various surveys indicate that VDAs have been more intensively adopted in emerging market economies than in advanced economies.
It has propelled many young educated middle-class Indians to invest in VDAs in expectation of high returns in the coming years. It is anticipated that India will soon become home to more than 150 million VDA owners. This rapidly increasing number of VDA owners has accordingly raised concerns about the associated risks.
The FTX episode is yet to be a distant memory and the related concerns continue to worry users and regulators alike. These concerns remain in focus under India’s G20 Presidency. Some believe that regulating VDAs would give them a seal of approval, others argue that regulation could ensure that the financial system at large and the investors will be better protected against risks from VDAs.
While the Indian government continues to mull over an appropriate regulatory response, in this article we propose that ‘user education and awareness’ is the need of the hour from the perspective of protecting the existing as well as the prospective VDA owners or (crypto) users as they are popularly called.
When we refer to VDAs we mean crypto-assets and do not refer to use of crypto for payments.
A big risk for users in any marketplace is information asymmetry. It could often lead to losses for the users either squarely because of fraud or at times due to misunderstandings of how the marketplace works. Additionally, not understanding the underlying technology as in case of VDAs could lead to further complications.
