India at crypto crossroads as New Delhi considers ban


For India’s millions of cricket fans, matches this year have been punctuated by adverts for cryptocurrency. The ads, featuring Bollywood stars and offering free bitcoins, largely glossed over the risks and legal ambiguities of trading the digital coins.

“At the Cricket World Cup, at least 70 per cent of the advertisements coming on television were something to do with crypto,” said Uday Singh Ahlawat, a corporate lawyer based in New Delhi. “Because crypto is a grey area, people were trying to take advantage.”

But as millions rushed to buy coins such as bitcoin and ethereum, “alarm bells started ringing” in New Delhi, said Ahlawat. Now CoinSwitch Kuber and other exchanges are braced for a regulatory backlash, as India’s government debates following China by banning cryptocurrencies.

The announcement last month that India’s parliament would consider measures to “prohibit all private cryptocurrencies in India” sparked a frenzied sell-off, despite the same bill having been first floated earlier this year.

“What happened was panic,” said Nischal Shetty, co-founder and chief executive of crypto exchange WazirX. “And people who joined crypto in the last six to eight months were the ones who panicked most.” Prices on Indian exchanges temporarily slumped 10-15 per cent below the global market, he said.

While the details of India’s crypto bill are not known, it is expected to allow exceptions that “promote the underlying technology” of blockchain, a vast digital ledger, while ushering in a central bank-issued digital coin, according to the parliamentary agenda announcement.

Ahlawat said he was sceptical of a ban on crypto, “that could have been done without any bill”.

Anirudh Rastogi, managing partner at Ikigai Law, which has represented Indian crypto exchanges, said: “There isn’t too much clarity on how the government is thinking about this.”

He added that the government had indicated it was against accepting cryptocurrency as legal tender, but press reports have suggested New Delhi is considering regulating the digital coins as assets and taxing trading.

India’s crypto proponents say they welcome regulation and that such hurdles are normal, with governments across the world working out how to regulate the freewheeling market.

November’s announcement was not the first time India’s nascent crypto industry had attracted regulatory scrutiny. After years of warnings to investors about the risks of cryptocurrencies, in 2018 India’s central bank ordered a ban on banking services to crypto companies, making it extremely difficult for them to operate. But the Supreme Court in March overturned the banking prohibition, reopening the crypto industry to investors.

According to Rastogi, the softening stance has come as “the government has begun to see that this industry is here to stay and you cannot completely just ignore the larger developments”.

Eyeing potential profits from tech-savvy young Indians, foreign investors piled in. The value of crypto transactions in India grew more than six-fold in the past year: from $9bn between July 2019 and July 2020, to $68bn for the same period the following year, according to blockchain data company Chainalysis.

Chart showing top VC investments in Indian crypto and related start-ups (by deal value)

With backers including Tiger Global and Sequoia Capital India, Indian crypto start-ups have raised $502m so far in 2021, according to Venture Intelligence, compared with just $25m the year before.

US venture capital firm Andreessen Horowitz in September made its first Indian investment in trading platform CoinSwitch Kuber, which, at a $1.9bn valuation, is the country’s most highly valued crypto start-up.

Now, said CoinSwitch Kuber co-founder Ashish Singhal, “there is an active dialogue between the industry and the regulators”.

“We ideally would not want to leave India,” added Singhal. “We hope that the government puts out those papers and regulations to promote that innovation as this industry grows.”

Singhal said the crypto industry’s stated goals of democratising finance were in sync with the Indian government’s embracement of digital payment innovations.

But while some of India’s ministers have made conciliatory remarks about crypto, prime minister Narendra Modi has taken a tougher stance.

In the days before the proposed crypto bill was announced, Modi urged countries to “work together on [cryptocurrency] and ensure it does not end up in wrong hands which can spoil our youths.”

Modi’s concern echoes critics who say crypto facilitates criminal money laundering, while punters are vulnerable to scams and unprepared for the risky assets.

“It was almost like a casino, just trying your luck,” said one 33-year-old working at a tech company who bought digital coins this year after seeing friends and colleagues cash in and buy iPhones with their profits. She declined to be named over fears cryptocurrency would be declared illegal.

Trading in India is still relatively limited, survey data from analytics firm Kantar suggests, with just 16 per cent of respondents on a crypto investing poll reporting that they had bought any digital coins.

Singhal said only “about six million” of CoinSwitch Kuber’s 13m users have traded at least once. WazirX’s Shetty said that 10m people had signed up and “millions” were trading.

A Chainalysis report showed India’s total transactions worth less than $10,000 over a year, a gauge for trading by ordinary people, lags far behind the US and China, but is comparable to Vietnam and Turkey.

The rapid growth has damaged the industry’s reputation. After facing accusations that crypto marketing was misleading, some start-ups have realised the aggressive approach went too far, too fast.

“We should not promote this as a get-rich-quick scheme,” said Kapil Rathi, chief executive of CrossTower, a cryptocurrency exchange.

After it expanded into India this year, CrossTower had offered some free money for trading to educate new clients.

WazirX did run some television commercials, but “in April or May we subsequently pulled our ads out,” said Shetty.

That may help avoid regulatory scrutiny, which drives crypto price volatility, a reality new Indian traders confronted after the announcement of the new bill.

“I made about a 50 per cent return until about a month ago,” said one amateur trader, “until all this stuff about banning crypto in India.” He said he was still up, but only by a modest 7 per cent.

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