On 4 March, the Supreme Court overturned a ban imposed by the Reserve Bank of India (RBI) on cryptocurrency payments. The RBI circular, in April 2018, had banned bank payment systems from being used for cryptocurrency-related payments. However, several cryptocurrency exchanges continued to operate, focusing on trading between cryptocurrencies rather than fresh investment in cryptocurrency by Indian investors. In some cases, they continued to process rupee payments through peer-to-peer mechanisms.
Coin DCX, which claims to be India’s largest crypto exchange continued to operate even after the ban. The exchange told Mint that it has seen a sharp rise in users and trading volumes after the SC judgment. “We saw nearly a 10x spike in sign-ups, post the Supreme Court judgment. The BTC/INR (Bitcoin to Indian Rupees) trading pair has seen 78.36% growth in the past 50 days.,” said Sumit Gupta, founder, CoinDCX who added that the exchange has acquired 50,000 users in less than 50 days.
“Two factors are driving up volumes. First, most volumes on crypto exchanges are trading volumes and some traders have come back to the market post the SC judgment. It is largely not fresh investor money pouring in yet. If the latter had happened the price of say bitcoin would’ve been far higher than it is. This is because fairly small fiat currency inflows change cryptocurrency price in a big way,” said Ajeet Khurana, former head of the BACC (Blockchain and Cryptocurrency Committee of the IAMAI) and former CEO of Zebpay.
“Second, people are sitting at home and have time to trade on their computers. This helps cryptocurrency trading,” he said.
Bitcoin, which is the dominant cryptocurrency, has soared in the recent market turmoil but has also seen a lot of volatility. Over two days ending 13 March, Bitcoin saw a roughly 50% crash, briefly trading below $4000. Cryptocurrency has recovered since then to trade at around $6800 at the time of writing this report. It is up around 30% over the past year in US dollar terms.
Crypto industry leaders in India are divided over whether some of the newfound interest in virtual currencies is driven by the aggressive monetary policies of central banks in response to the economic downturn caused by the covid-19 pandemic. “With massive money printing not only in India but globally, what it is doing is decreasing the purchasing power of rupee gradually. There is a very small percentage of people in India who are noticing this and are hedging their portfolios towards crypto,” said Gupta.
Some crypto proponents have drawn a parallel between virtual currencies and gold which also acts as a hedge against inflation and rises when monetary policy is loose. However, Khurana took a more conservative stance. “I don’t think bitcoin presently has the same safe haven advantages as gold because it is not as uncorrelated with equity as gold is. For that participation and money in the crypto market has to go up by several degrees,” he said. Bitcoin has risen around 42% over the past one year in rupee terms, partly propelled by depreciation in the Indian currency.
Investors should also take note of the regulatory risks associated with virtual currencies. The Supreme Court has invalidated the RBI ban on cryptocurrency related payments but it has not ruled on the legality of cryptocurrency in India. A draft government bill in 2019 reportedly sought to criminalize mere possession of cryptocurrency in India. However, the bill was not introduced in Parliament. Apart from regulatory risks, investors should also keep in mind that cryptocurrencies are highly volatile and can lead to substantial losses