India at crypto crossroads as New Delhi considers ban

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For the millions of cricket fans in India, this year’s matches were punctuated with advertisements for the cryptocurrency. The ads, featuring Bollywood stars and offering free bitcoin, have largely obscured the risks and legal ambiguities of trading digital coins.

“At the Cricket World Cup, at least 70% of the advertisements shown on television were related to cryptography,” said Uday Singh Ahlawat, a corporate lawyer based in New Delhi. “Because crypto is a gray area, people were trying to take advantage of it.”

But as millions of people rushed to buy coins such as bitcoin and ethereum, “alarm bells have started ringing” in New Delhi, Ahlawat said. Now CoinSwitch Kuber and other exchanges are braced for a regulatory backlash as the Indian government debates China’s follow-through ban on cryptocurrencies.

The announcement last month that the Indian parliament would consider measures to “ban all private cryptocurrencies in India” sparked a frantic sell-off, although the same bill was first introduced earlier this year.

“What happened was panic,” said Nischal Shetty, co-founder and managing director of crypto exchange WazirX. “And the people who have joined crypto in the past six to eight months are the ones who panicked the most.” Prices on Indian stock exchanges temporarily fell 10 to 15 percent below the global market, he said.

While 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 announcement of the parliamentary agenda.

Ahlawat said he was skeptical of a crypto ban, “it could have been done without any bills.”

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

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

Indian crypto supporters say they welcome regulation and that such hurdles are normal as governments around the world seek to regulate the freewheel market.

The November announcement was not the first time that India’s fledgling crypto industry has come under 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 overturned the banking ban in March, reopening the crypto industry to investors.

According to Rastogi, the easing stance came as “the government has started to see that this industry is here to stay and you can’t completely ignore larger developments.”

Seeing the potential profits of tech-savvy Indian youth, foreign investors flocked. The value of crypto transactions in India has more than six-folded over the past year: from $ 9 billion between July 2019 and July 2020, to $ 68 billion for the same period the following year, according to the data company. Chainalysis blockchain.

With backers such as Tiger Global and Sequoia Capital India, Indian crypto startups have raised $ 502 million so far in 2021, according to Venture Intelligence, up from just $ 25 million the year before.

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

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

“Ideally, we wouldn’t want to leave India,” Singhal added. “We hope the government will release these documents and regulations to promote this innovation as this industry grows.”

Singhal said the crypto industry’s stated goals of democratizing finance were in line with the Indian government’s adoption of digital payment innovations.

But while some Indian ministers have made conciliatory remarks on crypto, Prime Minister Narendra Modi has taken a tougher stance.

In the days leading up to the crypto bill’s announcement, Modi urged countries to “work together on [cryptocurrency] and ensure that it does not fall into the wrong hands, which could spoil our young people.

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

“It was almost like a casino, just give it a try,” said a 33-year-old man from a tech company who bought digital coins this year after seeing friends and colleagues cash in and buy iPhones with it. their profits. She declined to be nominated for fear the cryptocurrency would be declared illegal.

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Trade in India is still relatively small, data from a survey by analytics firm Kantar suggests, with just 16% of people polled in a crypto investment survey reporting having bought digital coins.

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

A report from Chainalysis showed that India’s total transactions valued at less than $ 10,000 over one year, a measure for ordinary people’s trade, lag far behind the United States and China, but are comparable in Vietnam and Turkey.

The rapid growth has damaged the reputation of the industry. After facing accusations that crypto marketing was misleading, some startups realized that the aggressive approach was going too far, too fast.

“We shouldn’t be promoting this as a get-rich-quick scheme,” said Kapil Rathi, managing director of CrossTower, a cryptocurrency exchange.

After expanding to India this year, CrossTower had offered free money for trading to educate new clients.

WazirX ran a few TV commercials, but “in April or May we then took our commercials down,” Shetty said.

This can help avoid regulatory scrutiny, which leads to crypto price volatility, a reality that new Indian traders faced after the announcement of the new bill.

“I made a return of around 50 percent until about a month ago,” said an amateur trader, “until all of this stuff on the crypto ban in India.” He said it was still up, but only a modest 7 percent.

Video: Cryptocurrencies: How regulators have lost control

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