India’s crypto industry expects Bitcoin surge to boost domestic business

New Delhi: India’s battered cryptocurrency industry, which has seen retail trading volumes decline by over 90% in the past three years, is cautiously optimistic about the industry’s latest surge.

On Monday, the price of one Bitcoin token crossed $82,000, scaling a new all-time peak and sparking optimism for growth of business among domestic cryptocurrency exchanges. However, domestic challenges such as heavy taxation and the Reserve Bank of India's adverse stance on cryptocurrencies could hinder a sustained growth in investors and trading volumes.

Ashish Singhal, chief executive of cryptocurrency exchange and aggregator CoinSwitch, said that the platform “has seen a 500-700% sequential uptick in active users on the platform—be it for returning users, or new users signing up on the platform.” The rise that Singhal pointed to occurred over the past one week, with Bitcoin rising to its record-high, fuelled by Donald Trump's victory in the US presidential elections held on 5 November.

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“The demand for investing in cryptocurrencies in India remains lower than the highs we witnessed in 2021, due to multiple factors—the key among which include a negative stance on cryptocurrencies by the central government, and no offset of losses in taxation,” Singhal added.

Others echoed Singhal. Sumit Gupta, chief executive of cryptocurrency exchange CoinDCX, Sathvik Vishwanath, chief of Unocoin, and Vikram Subburaj, chief of Giottus all said that the platforms had seen a clear increase in active users over the past one week, during which the price of Bitcoin tokens soared by over 20%.

“We’ve seen a double-digit percentage of inactive users logging in and becoming active traders (in the past week). Since our platform has been active since 2013, many of the early buyers who were inactive are now choosing to exit and book profit as well,” Vishwanath told Mint.

“More investors are logging in during this period to add to their cryptocurrency holdings, since investors are bullish on the overall global growth of cryptocurrency tokens as an investment class due to the US elections,” said CoinDCX’s Gupta.

To be sure, US President-elect Donald Trump is viewed to have a pro-cryptocurrency stance in policymaking. In September, Trump invested in a cryptocurrency business, World Liberty Financial, and is therefore expected to have a softer, more enabling stance on the controversial asset class than the erstwhile Biden government.

Also read | What the history of money tells you about crypto’s future

President Biden and the US Securities and Exchange Commission (SEC) chairperson Gary Gensler have cracked down on cryptocurrencies. Gensler, in June 2021, had said that cryptocurrencies involved “frauds, scams and abuses.”

The differing policy stance is expected to boost Bitcoin’s pricing, a bellwether in cryptocurrency industry trends, to above $100,000—a projection that brokerages had made at the start of the year. “The exchange-traded funds (ETFs) in the US have further rationalized cryptocurrency investments around the world, and the US’s pro-cryptocurrency stance could boost a more favourable policy approach around the world including in India,” Singhal said.

However, each of the above stakeholders are cautious about their approach towards the industry. “What remains to be seen is for how long the rally holds—if Trump’s policy work on cryptocurrencies takes a backseat, investors may not take a bullish stance on Bitcoin for a very long-term approach. We may then see some corrections in Bitcoin and the overall cryptocurrency industry’s valuations,” Giottus’ Subburaj said.

What is holding India back

Unocoin’s Vishwanath added that the WazirX hacking incident, coupled with the lack of any policy or formal approach from the Centre in India, has left the industry without a clear direction ahead.

“This (the WazirX hack) has seriously hampered the trust that consumers had on India’s crypto industry. Customers who have lost money on WazirX are not even considering alternate exchanges right now, and it could take up to at least the middle of next year for us to convince them,” Vishwanath said.

Also read | The $230 million WazirX hack: How safe are your cryptocurrencies

He added that if the US takes a positive approach towards cryptocurrencies, this may influence other geographies to follow suit. “So, just India taking up a different stance with regulation and taxation will not sustain in the long run. Cryptocurrencies are not tied to a physical location, and this could lead to capital and talent flight,” Vishwanath said.

In the long run, this could lead to diversification of businesses, too. Vishwanath said that a diversification approach may not be out of the question. CoinSwitch, India’s best-funded cryptocurrency venture, has already enabled equity investing—though Singhal has insisted that the diversification plan “was always on the cards, and is not linked to the crypto market’s movement.”

CoinDCX’s Gupta said that if India’s negative stance on taxation and investing “persists beyond the next fiscal, investors may find the tax burden too much to sustain—and this can significantly hurt the local cryptocurrency industry.”

“We haven’t heard any intent of a positive upturn in approach towards the cryptocurrency industry from the Centre, but we’re hoping that a friendlier US policy approach may make the India market more viable for investors, too,” Gupta said.