Even as authorities tightened the noose and prices plummeted, “how to invest in bitcoin” remained one of the most searched terms on Google India in 2018. This sums up the perils and promises of trading in cryptoassets in the country.
The year 2018 was a decisive one for India’s cryptocurrency ecosystem. From a central bank diktat prohibiting banks from dealing in cryptocoins, to the country’s biggest exchange, Zebpay, downing its shutters, investors and traders believe they’ve seen it all in the past year.
In December 2017, the price of bitcoin was at an all-time high of nearly $20,000, and investors in India were making a beeline for cryptocoins. This year, however, prices plummeted and currently a bitcoin is priced at around $4,000.
Traders also rue that confusion reigned supreme on the regulatory front, in the absence of a clear government stance. India is still working on draft regulations for virtual currencies and a panel headed by India’s economic affairs secretary Subhash Chandra Garg was expected to submit its findings to a panel this month.
Now, all eyes are on prime minister Narendra Modi’s government, which is expected to draft a clear policy on bitcoin and its ilk soon.
RBI versus exchanges
At its peak in late 2017, major crypto exchanges were adding between 300,000 and 400,000 users every month. However, now the number has trickled down to just a few thousand, thanks to an unfavourable policy environment, say industry experts.
The Reserve Bank of India (RBI) had first warned against digital currencies as early as 2013, but it tightened regulatory norms earlier this year. In April, the regulator instructed all banks in the country to wind down business operations with cryptocurrency exchanges and traders within three months. This meant no more trading in rupees on cryptobourses.
The exchanges refused to give up, though, and approached the supreme court. While the final hearing in this case commenced on Sept. 11, the case hasn’t moved ahead much thanks to several adjournments and delays. The next hearing is on Jan. 15, 2019.
In order to stay afloat, exchanges have experimented with peer-to-peer (P2P) and crypto-to-crypto trading. This allows traders and the exchanges to circumvent the RBI ban as transactions are not routed through the exchanges’ bank accounts.
“Before the banking ban, no one had thought that the P2P model could be successful in India as it was, in its earlier form, riddled with problems. However, investors took to it really easily and it has been working very well,” said Nischal Shetty, founder of WazirX, a cryptocurrency exchange in India.
Not all exchanges weathered the storm, though. In September, Zebpay decided to move to Malta after shutting down its India operations. “The curb on bank accounts has crippled our, and our customers’, ability to transact business meaningfully,” the cryptobourse said in a blog after announcing its decision to shift its headquarters.
There is a threat of more such firms shifting overseas, “if there is no clarity on the regulations, or if the stance continues to be unfavourable,” said Shetty.
The absence of a well-defined government policy has left the ecosystem in a state of limbo.
Government versus exchanges
Since last December, the government has become more vocal about its displeasure with cryptocurrencies, even likening it to a ponzi scheme. In the 2018 annual budget in February, finance minister Arun Jaitley reiterated that he will not make cryptocoins a part of the formal payments system.
Then, in October, the government said it was looking to “ban (the) use of private cryptocurrencies in India.”
Meanwhile, the Garg committee’s recommendations are awaited. In an affidavit filed in the supreme court last month, the government said the panel’s draft report will be submitted to an inter-ministerial group this month. Court documents suggest that the government is still in the process of choosing between regulation and a ban, which leaves some hope for the industry.
Hopes for 2019
“Due to the confusion, the ecosystem has stagnated because businesses have put their plans on hold,” said Sathvik Vishwanath, co-founder and CEO of Unocoin, a cryptocurrency exchange. Vishwanath is, however, hopeful that there will be more clarity on the regulatory stance in 2019 so that the ecosystem can become stronger.
Besides, the government has indicated its keenness to develop blockchain technology in India. Since cryptocurrencies and blockchain are intertwined, the industry is optimistic.
“In 2019, we are going to see an increasing number of blockchain products and services with real use cases. And this is going to lead to a bull run in the virtual currency market,” said Shubham Yadav, co-founder of Coindelta, another Indian cryptocurrency exchange.
The year 2017 was a bull market for bitcoin and other cryptocurrencies, while in 2018 they were in the throes of a bear hug. As we approach 2019, the industry is hoping that once again the tide will turn.
“This year has been a wild ride. Lot of new investors came into the scene after watching the parabolic move in bitcoin last year and are now scared,” said a cryptocurrency enthusiast who identifies himself by the pseudonym Gabru and runs groups with over 4,000 members on the instant messaging platform Telegram. “People who have been in crypto for longer know that this is just another market cycle like the past ones, when Bitcoin went down 80-90% (in previous bear markets) but still few years later was able to break all-time highs. I think this time is no different.”
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