Two months after the Supreme Court struck down a Reserve Bank of India circular, which had brought the cryptocurrency market in India to a near standstill, the industry is back in action again.
Trading volumes are on the rise, new partnerships are being forged and queries from potential investors in platforms dealing in cryptocurrencies have restarted. This despite the fact that the industry is currently operating in a regulatory vaccum, as both the government and the RBI are silent on what form of regulation will eventually be imposed.
Platforms dealing in cryptocurrencies have written to the RBI seeking clarity on their status but are yet to hear back. In the meantime, trading activity and deal-making is rising, said the six executives at crypto exchanges that BloombergQuint spoke to.
Trading Volumes On The Rise
Prior to the April 2018 circular by the RBI, the Indian cryptocurrency market was soaring with an average trading value of around $100 to $150 million a month, said Ashish Singhal, chief executive officer at Coinswitch. The trading values soared and fell with the volatile value of the cryptocurrencies like the Bitcoin, which rose $1,100 in April 2017 to a peak of over $19,000 in December 2017, according to Coinmarketcap.
When the RBI circular was issued, the price of Bitcoin was trading close to $6,600.
This crashed trading volumes as the regulator asked all banking and non-banking entities to stop transactions with cryptocurrency exchanges. From a trading volume of about 7,500 bitcoins a day, volumes slipped to 400 a day, said Singhal.
What’s Driving Interest
The reasons for the increased interest are wide ranging. India’s crypto believers are back in the market and traditional investment options are volatile.
But there is another technical factor that is at play globally for Bitcoins. It’s called ‘halving’.
Since the supply of Bitcoin is restricted to only 21 million coins, every four years the cryptocurrency goes through a ‘halving’ event. Currently, around over 18.5 million bitcoins have been mined.
Each Bitcoin transaction is cleared by ‘miners’ on a blockchain for which the miner receives a reward which was originally set at 50 Bitcoins per block. The first halving took place in November 2012 and the second in July 2016. The third halving took place on May 11 this year.
A miner used to get 12.5 Bitcoins for every block they mined till the latest halving, which has now reduced to 6.25 Bitcoins.
“Since the supply is lower and the reward is now half, there is eventually going to be a price rise due to scarcity,” says Nischal Shetty, founder, WazirX. Before the halving, there would be around $60-70 million worth of new Bitcoins coming into supply every day which now reduces by half, he said.
Crypto Exchanges Are Back
The increased interest and the ability of cryptocurrencies platforms to interact with the formal financial system in India means that crypto exchanges can come back in full force.
After the 2018 RBI circular, most exchanges moved to a peer-to-peer model. This allowed buyers and sellers of cryptos to transfer Indian rupees between their bank accounts directly. The crypto exchange would only settle and transfer the crypto holdings between the two parties after the transaction was complete.
"After the ruling, some banks have allowed people to transfer rupees to the exchanges and vice versa. So from a peer-to-peer model, we are conducting trades through our own banking channel, which makes the transactions faster and quicker,” said Sumit Gupta, co-founder and CEO, CoinDCX.
But not all banks are open to working with these exchanges even now. The larger private and state-run banks remain hesitant but a few small- and medium-sized private banks have opened their doors, a number of the executives said.
New Partnerships; Fresh Investor Interest
New partnerships are also being forged in the hope that the Indian crypto market may grow again, perhaps in a regulated manner.
BuyUcoin has partnered with Mobikwik, which allows users of its wallets to buy and sell cyrptocurrencies via card payments, Unified Payments Interface payments or net-banking, said its founder and CEO Shivam Thakral.
Arjun Vijay, chief operating officer and co-founder of Giottus Technologies said that they are working with Mobikwik and PayU to allow instant withdrawals and deposits as well as payment gateway services.
“We are also looking at launching liquidity partnerships with multiple international exchanges. If an Indian investor wants to buy a cryptocurrency or coin with low liquidity, they can connect with sellers from the international exchanges. These partnerships will lower the transaction fees and transaction times, Vijay said.
Unocoin plans to re-launch its offline merchant services in the coming weeks, so that merchants can use QR-based payment requests generated from the company’s mobile application to accept payments through Bitcoins, its co-founder and CEO, Sathvik Vishwanath said.
International interest in Indian crypto entrepreneurs is also reviving.
According to Crebaco Global Inc., a credit rating and audit firm for blockchain and crypto companies, India has an immediate potential market size of $12.9 billion if the sector is regulated.
In November last year, Japan-based crypto exchange Binance acquired Wazir X for an estimated $10 million. Both companies launched a $50 million blockchain development fund in March this year.
“Traditional venture capital investors who stayed away from the industry until now are exploring startups in the space. Some of them have approached us to collaborate and co-invest with our fund,” said Shetty of WazirX
Investors are certainly circling but may wait till regulations get clearer.
Thakral of BuyUcoin said local venture capital interest is still limited although international investors are keeping an eager eye out for investment possibilities in India.
“Interest from foreign investors is rising but these are still preliminary discussions as they want to see how the market develops over the coming months,” said Gupta of CoinDCX.