As of August 2020, India was home to 17.7% of the world’s population (1.32 billion people to be more specific), coming a close second to China’s 1.39 billion people. The Asian country that has produced some of the world’s wealthiest tycoons doesn’t shy away from leveraging on new technology to move its 24-hour economy.
India was also one of the earliest countries to embrace cryptocurrencies and blockchain, where a report by Dappros in 2018 showed that the country had a record 12,509 blockchain developers. However, in April 2018, the Reserve Bank of India (RBI) shocked the nation’s thriving crypto ecosystem with a sudden ban on crypto trading.
The ban spelled doom for over 5 million crypto enthusiasts at the time and started a complex tug of war between them and the government. Fast forward to March 2020 and the country’s Supreme Court lifted the ban on crypto trading, which has since put India back on the list of the country’s with the fastest-growing crypto economy.
So, why is there such a complicated crypto market in India? Is India ready for double-digit growth in crypto-related activities? Why is the RBI hell-bent on criminalizing crypto trading in the country? Let’s dive deep into India’s crypto industry and find out what the future holds for the economic powerhouse when it comes to blockchain.
India’s Crypto Ban
In a statement released on 5th April 2018, India’s monetary regulator, the Reserve Bank of India (RBI), banned the buying or selling of cryptocurrencies in India. The press release read,
“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling [virtual currencies].”
Before the ban, Bitcoin was trading at 20% higher than the international price since the demand for the cryptocurrency was more than the supply. The country had over 11 active trading crypto exchanges including WazirX and ZebPay with $3.2 million changing hands in the country’s peer to peer trading platforms.
Following the ban, several crypto-related bodies filed a petition with the country’s high court challenging the ban. Key among them was Kali Digital Systems, who engaged Khaitan & Co. Law firm who in their filings stated,
“The circular appears to be arbitrary and unconstitutional since it does not give strong facts as to why RBI is against the business of cryptocurrencies. Logical and well-thought argument backed by solid facts are the primary requirements under the constitution to put a stop to any business in India.”
Also, top crypto trading exchanges in the country, such as Zebpay, announced that they were shutting down due to the hostile crypto trading conditions in India. When announcing this decison, the exchange stated,
“The curb on bank accounts has crippled our, and our customer’s, ability to transact business meaningfully. At this point, we are unable to find a reasonable way to conduct the cryptocurrency exchange business.”
RBI Lifts Ban on Crypto Trading in India
In January, the Supreme Court in India listened to a 2-week high profile hearing by the public and industry-led petitioners challenging the RBI crypto ban. After deliberation and delays, the court finally ruled that the RBI ban should be lifted, terming it ‘disproportionate’.
An intervention by the Internet & Mobile Association of India (IAMAI) had a lot to do with the landmark ruling that has brought life back to India’s crypto market. Other notable names that played a massive role in the overturning of the ban were Binance crypto exchange that acquired India’s Wazirx crypto trading platform in 2019.
A few days after the ruling, there was information emerging that the country’s central bank was planning to appeal and ask the Supreme Court to review their stand. However, since the historic ruling, crypto-related activities have spiked. A leading crypto exchange, OKEx, recently launched in the country.
While responding in an interview about the lifting of the ban, Tim Draper, a billionaire venture capitalist interested in tapping into India’s colossal crypto market potential, commented,
“The Supreme Court of India and the Indian government have shown that the best ideas ultimately prevail, and just in time, because the benefits of Bitcoin and crypto over current systems will become apparent during this crisis.”
What drives crypto adoption in India?
Despite the complex crypto climate in India, there’s still a lot of hope and potential regarding digital currencies in India. A recent survey by OKEx and Coinpaprika identified the following two primary reasons why there’s a thriving crypto environment in India:
High remittance demand
India has a population outflow of over 17 million immigrants who are always remitting money to their families back home. Remittance fees all around the world are incredibly high, with India incurring $ 5.67 billion in costs in 2019. The use of Bitcoin and other cryptocurrencies acts as a cheap and fast cross remittance method, which has massive potential for growth in India.
Conversion of India Rupee into a stable fiat
Indians love shopping on e-commerce sites such as Amazon and Netflix. The country’s Rupee is always fluctuating, which makes Indians want to conserve their money in US dollars. However, the country has rigid forex regulations, which makes it challenging to convert the Rupee into USD. To meet the demand for Rupee conversion, people are turning to C2C crypto platforms, which are fast and efficient.
The Current Crypto Climate in India
There’s still a lot of uncertainty about the regulation of cryptocurrencies by the Indian government. Recently, a publication revealed that the policymakers were actively working on presenting a bill to the country’s parliament that looked to ban crypto trading. According to the report, an unidentified government official stated,
“We are working on it. After inter-ministerial consultations, it (the note) would be presented to the cabinet for approval. Once Parliament resumes for the session, we are hoping to get it ratified,”
Meanwhile, the head of research at Blockchain.com, Garrick Hileman, stated in an interview that Indian banks were showing a growing interest in cryptocurrencies, but were quite skeptical due to regulatory uncertainty. Also, several crypto exchanges have written to the country’s central bank to seek clarification on whether they are taxed as a commodity, currency, service, or goods based on the GST framework.
Recently, a former Finance Secretary who played a considerable role in drafting the bill to ban cryptocurrencies in India engaged industry leaders on a discussion on digital assets. The former official, Subhash Chandra Garg, engaged a panel where he stated,
“The way cryptocurrency works is on the distributed ledger technology. It’s a high investment technology. It can never be a common man’s currency.”
In QI of 2020, the number of registered users from India on the OKEx crypto exchange rose by 4100%. The staggering figures indicate a high appetite for crypto by Indians looking to diversify their asset portfolios by investing in digital assets.
Increased Crypto Scams in India
A recent report by Microsoft revealed that India experienced crypto-jacking incidents that were five times higher than the global average. There’s also a spike in the number of wealthy crypto holders in India who are falling prey to fake wallets. Manan Shah, the CEO of Avalance Global Solutions, stated,
“I have seen so many wealthy Indians falling into the trap of such fake cryptocurrency wallets in the recent past. One gentleman just came to me who lost $50,000 (over Rs 37 lakh) while dealing with one such fake platform.”
Sumit Gupta, the CEO of the CoinDCX crypto exchange, acknowledged that hackers and scammers were getting more sophisticated, and users needed to stick to basic security principles when dealing with virtual currencies.
The Future of Crypto in India
Despite the uncertainty of the regulation of cryptocurrencies by the Indian government, there’s an increasing growth in the adoption of virtual currencies in the country. The country’s Prime Minister, Narendra Modi, recently endorsed blockchain, terming it as an ‘opportunity for frontier technology.’
Despite the lifting of the ban on crypto trading earlier in the year, India still has a long way when it comes to full-scale crypto education, but that will likely come given time. Until then, unless the ban is reversed, the complex Indian crypto market should continue to thrive and flourish.