Cryptocurrency in India

States regulate digital assets in different ways. In 2021, the legal status of cryptocurrencies in India remained uncertain. While some states actively traded koins, others banned their use. Contrary to this unevenness, the number of crypto-enthusiasts in the country has been steadily increasing. According to Broker Chooser, more than 100 million citizens have invested in the new asset class at the end of 2021 – more than anywhere else in the world. The demand for digital coins has turned India into one of the fastest growing cryptocurrency markets. The leadership has been driven by a lot of activity on decentralized funding platforms.

The popularity of cryptocurrency in India

Blockchain and digital coins are fundamentally changing the financial structure of nations. According to the World Bank, India is among the top 10 largest economies in the world in 2022. The country’s GDP is $2.94 trillion. However, nearly 190 million Indians do not have access to banking services due to infrastructure issues or lack of documents to open an account.

Most of these people use smartphones and go online. They can easily pay for purchases with cryptocurrency. But the authorities still have a lot of work to do before digital money is recognized as a legal means of payment. For now, cryptocurrency is being used for other purposes in India:

• Cross-border money transfers. For several years, India has remained the world’s largest out-migration country (about 17 million people per year). Migrants create a large demand for remittances. Inbound transactions totaled $83 billion in 2021. Cryptocurrency remittances cost less (about $0.02 instead of the standard $6.82) and are faster.
• Inflation protection. In 2020-2021, the exchange rate between the Indian rupee and the dollar rose, which led to the depreciation of the national currency. At the same time, trading of digital coins on crypto exchanges increased. Many Indians realized that bitcoin could be a more reliable asset than paper bills.
• Investment tool. According to Chainalysis, Indians will invest nearly $40 billion in cryptocurrencies in 2021. That’s 200 times more than in 2020 ($200 million). Most of the Indian investors are residents of large and medium-sized cities who invest in digital assets to earn extra income.

Features of regulation

In 2018, the Reserve Bank of India (RBI) issued a circular prohibiting financial organizations from serving companies related to digital currencies. After that, local cryptocurrency exchanges began to shut down.

In 2020, the country’s Supreme Court lifted the ban on digital coin transactions. This triggered an explosion of trading on cryptocurrency exchanges. In 2021, the number of registrations on India’s largest platform WazirX increased by 2648%. In total, the trading volume on the country’s top four platforms grew from $10.6 million to $102 million.

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In 2021, the Indian authorities were actively engaged in the regulation of cryptocurrencies. In December, the government prepared a bill that would oblige Indians to disclose information about their digital assets and transfer them to regulated platforms. As part of the fight against money laundering, all anonymous transactions and non-custodial wallets will be banned. Cryptocurrencies will be equated to assets in India. Transaction income will be brought into the taxable base.

How to buy cryptocurrency

While Indians are waiting for the establishment of clear rules for trading digital coins, a large number of new platforms are entering the market. The largest crypto exchanges (WazirX, CoinDCX, Bitbns, ZebPay) offer a standard set of features:

• Buying, selling, exchanging some coins for other coins, as well as for rupees.
• Cryptocurrencystaking.
• Mining of BTC and altcoins.
• Cryptocurrency loans.

To trade on these platforms, you need to be verified. To work with a fiat account (INR), you will need to link a bank account or deposit money through the Loop peer-to-peer service.

For those who prefer anonymous transactions, the Indian crypto market offers decentralized exchanges (Curve Finance, Uniswap) and P2P platforms (LokalBitcoins, Paxful). The latter act as a bridge between sellers and buyers of koins and convert fiat rupees into digital coins.

India’s national cryptocurrency

In November 2021, RBI proposed that parliamentarians consider an initiative to launch a digital rupee. The national cryptocurrency (CBDC) pilot project is scheduled to start in the first quarter of 2022. For now, the CBDC is working out certain aspects of its implementation. In particular, financiers are deciding whether the technology should be decentralized or semi-regulated. The initiative is proposed within the framework of the bill on cryptocurrencies, which will be considered by Parliament in the current session.

Author: Saifedean Ammous, an expert in cryptocurrency economics.