Bitcoin might become for India’s millennials what gold is for their parents, no matter what the government says.
India, the fifth-largest nation by nominal GDP, often makes headlines for its attempts to outlaw crypto, real or rumored. But the government’s less-than-friendly attitude toward crypto has not curbed Indians’ curiosity about it.
Nor do rumors scare away the giants of the crypto world. Just last week, Coinbase announced it is planning to establish its presence in India. Another powerhouse, Binance, has been there since 2019 when it acquired India’s largest crypto exchange, WazirX.
India has a population of 1.4 billion people (the largest in the world after China) that is predominantly young (median age is between 28 and 29 years old) and tech savvy. Over the past few decades, India has become a developer hub for many tech projects around the world.
“India is one of the youngest countries in the world, and these 28- to 29-year-olds are people who want to be a part of the revolution,” said Indian crypto advocate and YouTube influencer Kashif Raza.
India also has the second-largest online population after China, with over half a billion users taking advantage of the cheapest internet in the world. According to the BBC, one gigabyte of mobile data costs $0.26 in India, compared with $12.37 in the U.S. and a global average of $8.53.
This means India has the potential to become “one of the largest crypto economies in the world,” said Mohammed Roshan, former chief scientist at the Unocoin exchange and now the CEO of GoSats, an app allowing people earn bitcoin rewards while shopping online.
Yet, mixed signals sent by the authorities might be keeping some Indians from embracing bitcoin, experts told CoinDesk. India is 11th on Chainalysis’ 2020 report listing global crypto adoption by nation.
Indians’ excitement about crypto is visible, however. According to a report by Quartz, in 2018, one in every 10 bitcoin purchases in the world happened in India. The country is the second-largest source of web traffic to Paxful, a peer-to-peer bitcoin trading platform, after the U.S., according to SimilarWeb.
Last year gave a solid boost to Indians’ interest in crypto overall, Roshan said: “People who didn’t even really know about crypto are now talking about NFTs.”
Stocking up on digital gold
WazirX is the largest exchange in India, acquired by Binance in 2019, and it covers about half of the Indian crypto market. According to CEO Nischal Shetty, WazirX currently has 1.8 million users. Using that figure and the number of crypto app downloads in app stores and web traffic data, Shetty estimated there might be as many as 10 million users in India.
Most WazirX users just buy and hold, Shetty said. While 10% to 15% of the exchange’s customers are “heavy traders who trade every day,” not many use crypto as a vehicle for remittances. By Shetty’s estimate, in India about 1.5 million people are trading crypto while around 6 million are just holding it.
WazirX’s daily trading volume is about $55 million, according to CoinGecko, but has been fluctuating between $16 million and $141 million through the first quarter of 2020. The entire Indian market sees daily volumes of $150 million to $350 million, Shetty believes, and the total value of crypto assets held by Indians is hovering around $1.5 billion. Up to 55% of that might be in bitcoin, Shetty said. For many Indians, bitcoin is digital gold, i.e., a means of saving money.
Indians have a habit of accumulating actual gold as a savings tool, and it has strong cultural roots, said Kashif Raza.
“Indian culture always promoted savings. India has always been a huge holder of gold. Every family is keeping gold in their house,” he said.
When a couple gets married or a child is born, the family is often gifted with gold. That family wealth, in a form of jewelry, can be passed down to new generations.
But India has a history of prohibitive policies against foreign currency purchases, so the habit of saving money in dollars to hedge against inflation that’s popular in South America or Western Europe, doesn’t appear to be as widespread in India.
As Shruti Rajagopalan, a senior research fellow at the Mercatus Center at George Mason University, wrote in an op-ed for Bloomberg, in the 1970s and 1980s, due to the regulation known as the License Raj, Indians could only hold foreign currency for a specific purpose after getting a permit from the central bank. The government would raid people’ houses to seize dollars and gold bars, she added.
Bitcoin is harder to control or confiscate, and it also provides a new way of earning money even when the mainstream economy is doing not so well, especially during the coronavirus pandemic year of 2020.
“Gold would be the investment of choice for the older generation. The young generation sees the advantage … to buy bitcoin, because gold became more stable and bitcoin is so fast-moving,” Shetty said.
Vijay Ayyar, head of business development at the crypto wallet Luno (a CoinDesk sister company), agreed, saying younger Indians view bitcoin as a better investment than gold.
The pandemic may have made crypto more popular. Many people stuck at home for months, some of whom lost their jobs, turned to alternative ways of earning money. Registrations on crypto exchanges went up, Raza said. According to Shetty, WazirX’s user count grew threefold since March 2020, and the trading volume went up by a factor of at least eight.
It also helps bitcoin’s popularity that people in India are closely following U.S. tech companies like PayPal and Tesla, which are embracing bitcoin.
“There is a heavy tech influence from the U.S. in India,” Shetty added.
Not just hodling
Remittances might have been another big use case for crypto in India. India is the largest receiver of inward remittances globally, the World Bank found in 2018, with an inflow of $79 billion.
However, experts who spoke to CoinDesk said not many Indians are using crypto to send money across borders – at least, not yet. Roshan believes one of the reasons is because it’s usually younger Indians who are working abroad and sending money to their older relatives in India, and those relatives “might not know what to do with it.”
The regulatory uncertainty doesn’t help, said Alpen Sheth, senior technologist for financial innovation at Mercy Corps and member of the Digital Currency Governance Consortium at the World Economic Forum.
“If the government is going to come after it, why would I use it? The fact that the RBI [previously] basically prohibited banks from dealing with crypto put up a red flag for a lot of people,” he said.
However, the younger generation might be willing to use bitcoin in different ways, said Roshan.
“Millennials, people past 25 to 26 years old, think of bitcoin as a long term investment. Gen Z people are more about spending. They say: We want to spend sats, we want to get rid of bank cards,” he said.
Mixed messages and the looming ban
In 2013, the first crypto exchange in India, Unocoin, was launched. A day later, the country’s central bank, the Reserve Bank of India (RBI), warned Indians about the risks of investing in cryptocurrencies. The regulator has been skeptical about crypto, even while encouraging India’s banks to experiment with blockchain.
In April 2018, the RBI barred India’s banks from serving crypto exchanges and related businesses. The country’s crypto industry immediately struck back, challenging the ban in court. In March 2020, India’s Supreme Court ruled against RBI and lifted the ban.
The Indian government started discussing possible crypto regulations back in 2017, but it only introduced a bill into the parliament this past January, which would ban cryptocurrencies except the one RBI might issue in the future. In addition, according to unconfirmed reports, the government might be considering banning and blocking IP addresses associated with crypto exchanges.
At the same time, a reassuring signal came from the minister of finance and corporate affairs, Nirmala Sitharaman, who said on March 15 the government is “not shutting all options.”
“We will allow certain windows for people to do experiments on the blockchain, bitcoins or cryptocurrency,” Sitharaman said.
In addition, the government has its eyes on companies that might be using crypto. On March 25, the Ministry of Corporate Affairs announced businesses will have to report crypto on their balance sheets starting April 1.
The regulator is also actively exploring the possibility of issuing a central bank digital currency, or CBDC, backed by the Indian rupee.
India’s crypto industry does not believe the government will ban crypto. A full ban might hurt not only crypto users but quite a few businesses. In a November 2020 RBI Bulletin, the central bank said there were 342 crypto products and services in India.
WazirX’s Shetty believes things are looking up.
“The bill is a step forward. At least, the government is talking about crypto and the regulation. As an industry we’re doing a number of things to make sure the government understands what this new technology is,” he said.
For crypto services, the regulation means access to banking (because so far only a handful of banks catering to crypto businesses) and clearing the industry of scams.
Talks about the possible crypto ban “caused some panic in the market for sure,” Luno’s Ayyar said, so the market might cool down in the coming months due to the uncertainty.
However, “the finance minister seemed quite positive about ensuring that innovation does not get trampled and hence the industry is in general hopeful of a positive outcome overall,” he added.
Sheth said he believes things might go either way.
“The government may take a very harsh action against cryptocurrency. But there is not much consistency inside the government about that, seems like there are conflicting perspectives about it inside the government,” he said.
He added that because of that inconsistency, it’s very hard to predict what will happen next.
“Even people who talk to government officials don’t know much,” he said. But he expects the regulators most likely will adapt to the new reality and choose to ban only payments in crypto (which means, using it as money that competes with the national currency) and oblige people to report crypto gains for their taxes.
At the end of the day, most crypto exchanges in India have two entities, one in India and one abroad, so if things turn hostile at home they can easily move operations out, Raza and Roshan told CoinDesk. Popular jurisdictions include Singapore, the UAE and Estonia.
In the meantime, scary rumors of the future crypto ban only piques people’s curiosity, Sheth said. “The rumored ban is stimulating a lot of conversation among the population about cryptocurrency,” he said, adding:
“Anecdotally, everyone I know in India is curious about getting exposure to bitcoin.”