Nikhil Kamath on crypto fall and its future

“I am not able to comprehend how much are the prospects of future earnings in DeFi and decentralisation. I believe that the $3-trillion overall market cap is not justified. That being said, tomorrow if the world changes and it becomes increasingly relevant for something to be decentralised, maybe there is a use case for it,” says Nikhil Kamath, Co-founder & CIO, Zerodha.





Have you ever owned any crypto? If not, why have you never bought into the crypto story?

So, no I have not. We work in a very regulated space. We are regulated by Sebi and RBI and everybody who is out there to regulate and you would never want to do something which is in the grey area. We have never directly or indirectly done anything crypto. Outside of that, I have never truly understood the concept of owning an asset where there are no earnings at the bottom. I have some gold, but I have a definite reasoning as to why I own gold.

As for crypto, whoever has not bought into it might have gotten lucky in the recent past but looking at the longer journey of crypto, I do not want to be a pessimist and say bad things about crypto left, right, and centre. People who have invested a few years ago probably are still sitting on really large gains. So from my perspective, I have not invested in crypto.

Crypto is supposed to be part of a larger decentralised movement where we are seeing dApps and DeFi and a lot of things are happening. There’s a company like Polygon from India which has manages to snap up Youtube gaming. Cryptos are being adopted globally for purchase of sales and services as well?

I am sure there is some kind of a use case for crypto. What we are contesting today with the correction we have seen in the markets is if the amount of earnings that is happening on whatever fees that people are collecting justifies that $3 trillion market cap? At the end of the day, any asset class should have some kind of a correlation with either the underlying earnings from it or the prospect of future earnings.

I am not able to comprehend or I am not able to kind of convince myself as to how much are the prospects of future earnings in DeFi and decentralisation. I believe that the $3-trillion overall market cap is not justified. That being said, tomorrow if the world changes and it becomes increasingly relevant for something to be decentralised because people lose whatever faith in the existing systems, maybe there is a use case for it.

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The question that comes to my mind when I look at cryptos at current prices is do I buy or not and I am not even talking about the $20,000-22,000 today but at $50,000-$60,000 a Bitcoin, for example, should I have paid so much? The answer in my mind was no. It is very hard to review it. If I want to analyse equity, if I want to analyse

for example, I can look at what business they do, who their vendors are, who their customers are, how much margins they operate in, how much money the company will put out. I am unable to do the exact same thing for a crypto asset and that leaves me a little bewildered as to how you value something like that and how do you decide what price you will pay for it.

You track VIX. Compared to the volatility in cryptos, it seems even the equity markets has it easier! Look at the wild swings, look at what is happening in the crypto world?

The Indian market has been unusually resilient. Nasdaq is now down 30% plus and maybe the crypto world is down 60%. The Indian equity markets are not accounting for currency depreciation of 17-18%, which relatively seems like nothing. If you look at earnings at some point, I am sure the higher inflation, higher cost of raw material will bring down corporate margins. So even if you were to assume we are trading at 17-18 times 23-24 PE, we are not cheap but we are holding up. So definitely on the equity street there is no panic today.

People are looking at how we are faring versus the rest of the world. When one talks to international investors, the demographics of India seem to be favouring us. We are a young country which is growing at a reasonably fast pace and there seems to be a lot of appetite amongst foreign investors to have some exposure to India or having increased exposure.

We are benefiting from the Chinese circus for the lack of a better word. So equity relatively seems okay in isolation. I mean 17-18% might not be the worst but it is not good either. I guess one will have to wait and watch and figure out which way things go in the future but from where we sit today and where we are right now, people have been better off in equities versus the other asset classes as of now.

There is a lot of fear around cryptos. Your views?

We have gotten lucky in India. The regulators, the government, RBI especially has been spot on in implementing these taxes and banning payment gateways from transferring money to crypto exchanges. They did this just before the fall and I feel like this probably happened when Bitcoin was at say $50,000 or whatever and in this last fall to $20,000, Indian retail to a certain extent didn’t have to face the extent of trouble their foreign peers might have seen due to opportune regulations. So to give credit where it is due, I do not know if this was the intention, but it seems to have worked out in the favour of retail in India.

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