Cryptocurrencies make a solid comeback in India despite a hostile environment

The new currency.
The new currency.
Image: REUTERS/Dado Ruvic
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Indian investors are back in the cryptocurrency game and how.

There has been a sharp increase in trading volumes on cryptocurrency exchanges in India since March 5, when India’s supreme court quashed a Reserve Bank of India’s (RBI) circular that barred banks and other financial entities from providing services to virtual currency dealings.

Trading volume on Mumbai-based WazirX, one of India’s leading crypto exchanges, rose 400% and 270% month-on-month in March and April, respectively. Now, the exchange is facilitating around 60 million trades per day as compared to 20 million before March.

WazirX, which was acquired by global exchange Binance in November last year, is also seeing an uptick in new sign-ups and active users, said founder and CEO Nischal Shetty.

For Bengaluru-based global exchange aggregator CoinSwitch, April was the best month since inception in 2017. “Our Indian user base went up by 158% in April,” said Ashish Singhal, CEO of CoinSwitch. “Trading volumes in Indian rupees have shot up to 12-15 million each day from around 5-7 million prior to the supreme court order.” The company, which currently gets around 10% of its users from India, expects this number to rise in the coming months.

Rising like the phoenix

The past two years were a nightmare for crypto exchanges in India. After the RBI’s decision in April 2018, the virtual currency ecosystem in the country nearly choked, leading to several exchanges, including prominent ones like Koinex and Zebpay, shutting shop. A few others shifted outside the country to survive the onslaught.

But those who weathered the storm are now back in full swing. The high demand over the past couple of months has proved that Indians have an appetite for cryptocurrencies, and exchanges are planning to tap the market more efficiently.

For instance, CoinSwitch is creating a tailor-made mobile app called “CoinSwitch Kuber,” which will be exclusive for Indian users. “People can buy and sell over 100 cryptocurrencies easily using Indian rupees. Earlier, users could trade only by using base currencies like Bitcoin,” said Singhal.

Reflecting its commitment to the country, Malta-based global exchange Binance, in tie-up with WazirX, announced on March 17 a $50 million fund to promote the adoption of blockchain technologies in India.

Increased activity in the Indian crypto market has also drawn the attention of global venture capitalists (VCs) who are trying to understand how they can participate in the boom, Shetty of WazirX said. “They have realised that a lot of startups are mushrooming and they want to be the early movers,” he said. “In the US, there are huge investments taking place (in crypto startups) since 2010, which will also happen in India.”

All this attention is great, but experts warn that there are still obstacles for cryptocurrencies in India.

Hurdles Remain

Despite the supreme court’s order, some Indian banks continue to be reluctant to support virtual currencies. “Some banks are co-operating with us, while some are still hesitant,” Singhal of Coinswitch said.

The reason for this resistance could be due to a lack of clear norms from the RBI as well as the anonymous and speculative nature of cryptocurrencies. “Banks are concerned about the relative anonymity of cryptocurrencies and how they could be a safe harbour for illicit activities,” Anirudh Rastogi, founder of Ikigai Law, a technology-focused law firm. “By providing services to crypto exchanges and traders, banks think they are opening themselves to a risk of regulatory scrutiny.”

The records of virtual currencies are kept on an open-ledger but the anonymity of owners can create problems. This means cryptocurrencies could be misused to transfer illegal money or evade taxes.

The RBI must intervene to reassure banks and clarify that they can support crypto businesses and trade, he added.

Another hurdle for crypto exchanges to operate smoothly in India is the central government’s hesitancy, including the draft “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill” (2019), which was floated in July 22, 2019 and suggests a ban on all virtual currencies in India.

Until the RBI and the government have a change of heart, the path for the cryptocurrency ecosystem in India will remain difficult.