Making Sense of Volatility: Crypto Market Crashes vs Equity Market Corrections in India

Volatility is indeed a double-edged sword. It brings in the opportunity and yet creates the risk for investors. Whereas Indian equity markets have the infrastructure to handle sudden price movements quite well, the same cannot be said for crypto, which is a budding industry regulated loosely. It is therefore the responsibility of Indian investors to know the differences between crashes in the crypto market, and corrections in the real equity market-in order to safely and effectively embrace this volatile arena.

Understanding Volatility in Indian Markets

Volatility is the extent to which the price of assets varies over a period of time, being usually influenced in equity markets by earnings releases or by policy decisions or international economics. Regulatory announcements, on the other hand, are often so severe that they can make or break prices in crypto markets along with social media buzz or changes in global sentiment.

While a 5% drop in the NSE or BSE is treated with concern, such movement is routine, and sometimes mild, in the crypto universe.

Equity Market Corrections: A Regulated Ecosystem

India’s equity markets are governed by robust regulatory frameworks, primarily under the Securities and Exchange Board of India (SEBI), which ensures market stability and investor protection.

Circuit Breakers in Indian Stock Markets

To curb panic-driven crashes, Indian stock exchanges, NSE and BSE, implement a market-wide circuit breaker system based on the movement of the BSE Sensex or NSE Nifty 50.

The circuit breaker thresholds are:

• 10% Movement: Trading halts for 45 minutes (before 1 PM), or 15–30 minutes if later.
• 15% Movement: Halts can last up to 1 hour and 45 minutes.
• 20% Movement: Trading halts for the rest of the day.

These are designed to give the market a “cooling-off” period, allowing investors to reassess and avoid herd behavior.

Exchange Governance and Oversight

Indian exchanges are tightly regulated by SEBI and operate under rules laid down by the Securities Contracts (Regulation) Act. Key features include:

• Stringent listing norms for companies
• Mandatory disclosure of financial results
• Real-time surveillance of unusual trading activities
• Investor grievance redressal mechanisms

This governance model helps maintain market integrity and builds investor confidence.

Investor Safeguards in the Stock Market

Investors in Indian equity markets benefit from a host of safeguards:

• SEBI’s Investor Protection Fund (IPF): Compensates investors for broker defaults
• Depository system (NSDL, CDSL): Ensures secure holding of securities
• KYC and AML regulations: Reduce fraud and money laundering
• Ombudsman and SCORES portal: Allow investors to raise complaints against market intermediaries

Crypto Market Crashes: A Loosely Regulated Landscape

While cryptocurrencies are being adopted more and more in India, there is no light of clarity regarding their regulation. If one were to scan through the regulatory framework, there is no establishment requiring the sector to follow the defined regulatory requirements, as in conventional markets.

No Circuit Breakers in Indian Crypto Platforms

Unlike equity markets, Indian crypto exchanges like CoinDCX, WazirX, and CoinSwitch do not have formal circuit breakers. There are:

• No trading halts during massive sell-offs
• No cooling-off periods to allow reasoned decisions
• No uniform policies on downtime or error handling

This means crypto markets can experience steep declines within minutes, leaving investors with no time to react or exit positions.

Exchange Governance: Patchy and Self-Regulated

Indian crypto exchanges are largely self-regulated, though some are attempting to instill credibility through:

• Voluntary code of conduct (e.g., BWA's self-regulatory efforts)
• Third-party audits and proof-of-reserves
• KYC/AML compliance to align with RBI norms

However, the absence of an official regulatory framework or oversight body like SEBI means there's no standardized mechanism to protect investor interests or enforce accountability.

Lack of Investor Safeguards in Crypto

Investor protection in crypto is minimal compared to equities:

• No insurance for wallet losses or hacks
• No grievance redressal authority mandated by law
• No recourse in case of exchange failure or exit scams
• No SEBI- or RBI-backed compensation mechanisms

While exchanges may offer customer support and some level of transparency, these measures are not enforced by law, and may vary greatly in quality.

The Road Ahead: Regulation, Not Repression

India’s government has taken a cautious stance on crypto. While a blanket ban has not been enforced, the imposition of 30% tax on crypto gains and 1% TDS on transactions sends a clear message, crypto is taxable but not yet trusted.

There is a growing call for:

• A central crypto regulatory body
• Formal investor protection mechanisms
• Transparent and audited reserve holdings by exchanges
• Introduction of volatility control measures, possibly inspired by circuit breakers

These steps could help align the crypto space more closely with the safety nets investors enjoy in traditional markets.

Conclusion: Navigating the Divide

In either direction, equity and crypto markets in India straddle much of the spectrum of regulation. Equity markets guarantee a highly structured and secure environment for investors with circuit breakers and a SEBI in full force along with legal protection. On the flip side, there is the steadily depreciating, highly volatile, and latterly unprotected realm of cryptocurrencies.

Understanding this distinction is crucial. As both asset classes continue to coexist, savvy investors will need to adapt their strategies, and risk appetite, accordingly.