Stakeholders talk about what could be the way forward

Aditya Singh’s first serious foray into the world of cryptocurrencies happened over a failed payment. The owner of a recruitment firm that he runs with his brother, Singh says that sometime in 2015, one of their European clients wouldn’t pay the commission and eventually stopped taking calls.

“When we finally got through to the client, he gave us an option to pay in Bitcoins. We had our doubts but since there was no other way to get our commission, we agreed. That’s when we realised that there is a whole market around Bitcoin and other cryptocurrencies,” he says, refusing to reveal his investment or other personal details.

Aditya Singh

The deeper he dug, the more drawn he was to this decentralised financial system that existed beyond the control of governments and banks. “I also watched a lot of videos related to crypto currencies but they were mostly in English and I realised that discussion in Hindi about the fundamentals was missing in India,” he says, adding that he soon began posting videos on YouTube.

The idea clicked. Aditya’s YouTube channel, Crypto India, has 1.97 lakh subscribers now and he is routinely invited as an “expert” by news channels.

Singh’s story mirrors that of others across India, many of them from Tier 2 and Tier 3 towns, mostly aspirational young investors excited by the opportunities of this newest financial frontier — from Kanha Mohanty, 24, an engineer in Jagatsinghpur, Odisha, whose investments in cryptocurrencies earned him Rs 30,000 over the last one year, to the unemployed Pankaj Chowdhury, 26, from Howrah, West Bengal, whose mantra is to “invest only as much as you can afford to lose”.

Pankaj Chowdhury

In the absence of a regulatory framework or safety net, this interest in cryptocurrencies, mostly among first-time investors with little knowledge of either the products or the risks entailed, has caught the attention of policymakers. The government has decided to bring a Bill in the Winter Session starting Monday to prohibit “all private cryptocurrencies in India” with “certain exceptions”.

Currently, while India does not recognise cryptocurrencies as legal tender, there is no ban on trading in cryptocurrencies.

A volatile investment

While there is not much clarity on the composition of The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, on November 24, the possibility of a ban on certain cryptos led to panic-selling, resulting in a correction of over 20 per cent across cryptocurrencies listed on Indian exchanges.

It’s this volatility that marks cryptocurrencies. If stock prices are backed by the earnings and growth of a company, there is no such underlying factor for crypto prices, which are mostly driven by hype and demand.

Recently, investors lost millions of dollars as a new cryptocurrency inspired by Squid Game, the popular Netflix series, went on a roller-coaster ride. Its value plunged to nearly zero but within days, it was trading at $38 a token on an exchange called Pancakeswap. After a couple of days, the token’s value grew from $628.33 to $2,856.65, but five minutes later, it nosedived to $0.0007.

While Bitcoin, the world’s first cryptocurrency, was born out of the 2008 financial crisis, in India, it was around 2015-16 that the digital currency started to get noticed. In March 2020, the Supreme Court reversed the RBI’s move to cut the money supply to crypto exchanges, resulting in an exponential increase in investment flows into crypto assets.

During the ICC T20 World Cup in October-November, cryptocurrencies virtually flooded drawing rooms.

Ranveer Singh’s ‘kuch toh badlega’ campaign for crypto trading platform CoinSwitch Kuber, aired repeatedly during the World Cup matches, was among those aimed at millennials in Tier 2 and Tier 3 cities. His hardsell was hinged on the low-entry barrier for those looking to invest in crypto, and the ease of transaction on a platform that now lays claim to being India’s largest crypto asset one.

CoinDCX, CoinSwitch Kuber’s rival platform, roped in actor Ayushmann Khurrana. Multiple other smaller exchanges also joined the ad pitch. Reports pegged the collective ad spends by crypto players at a cumulative Rs 50 crore during the course of this World Cup.

The buzz had an unintended consequence: a flurry of meetings in policy circles, and regulators stepping in to temper the claims by exchanges.

On November 3, an umbrella grouping of 13 members who are part of the cryptocurrency ecosystem put out an advertisement that said, “Crores of Indians have invested over Rs 600,000 crore in crypto assets.” Through the advertisement, the group — including the Internet and Mobile Association of India, Blockchain & Crypto Assets Council (BACC), crypto exchanges and others — said they are committed to complying with the BACC’s self-regulatory code of conduct, and to ensuring secure access to crores of investors.

This declaration came on the back of alarm bells being raised at various levels — within the government, regulatory circles and leaders in the investment fraternity. So far, going by the initial reactions, they don’t seem to be on the same page.

While the Prime Minister’s meeting on November 13 on the way forward for the sector called for “progressive and forward-looking” steps, RBI Governor Shaktikanta Das has advised caution.

On November 16, speaking at the SBI Banking Conclave, he said the issue evokes “serious concerns on macro-economic and financial stability” and that he is “yet to see serious, well-informed discussion” on it.

The RBI has in the past indicated that it is “very much in the game”, and getting ready to launch its own digital currency.

Capital market regulator SEBI, meanwhile, has reservations on regulating cryptocurrencies as a financial asset, while a Parliamentary Standing Committee on Finance, which met on November 15, favoured regulating cryptocurrency exchanges.

The way forward

It’s this view — that digital currencies be regulated, instead of an outright ban — that is gradually gaining traction.

Speaking to The Indian Express at an Idea Exchange session, Nilesh Shah, MD Kotak Mahindra AMC and a part-time member of the PM’s Economic Advisory Council, also favoured this.

“I am not qualified enough to say if crypto is a fraud or not… who knows, it may be the future and we are early entrants. So why not regulate and make people aware that this is high-risk, high-return? So that tomorrow, if it goes out of hand, it does not jeopardise many investors,” he said.

Ashish Singhal, founder & CEO of CoinSwitch Kuber and BACC co-chair, whose Ranveer Singh ads created a stir, says, “I believe that it (the ads) is one of the reasons why this has been taken up on urgency. But the crypto industry was booming even before the ads came out, so there is no point suppressing an industry… We have to come out of the shadows… How do we provide the right education to the user and ensure they understand the risk when they get into it… So definitely, guidelines and self-regulation organisations are needed to lay down what is allowed.”

Avinash Shekhar, co-CEO of cryptocurrency exchange ZebPay agrees. “We are awaiting further details on the Bill… There have been many positive steps taken by the government to learn and understand crypto and its impact on all stakeholders — investors, exchanges, policymakers. So, we are looking forward to a crypto Bill that takes into consideration all the inputs from those discussions,” he says.

Aditya Singh, the investor and YouTuber, isn’t perturbed by reports of a ban. “I feel everyone is reading too much into the Bill. The Finance Minister has clearly said that we are not going to ban cryptocurrencies entirely. Crypto has opened so many options and has become even more relevant after Covid, when jobs have been shrinking. For some families, yeh crypto bhagwan ka roop bankar aa gaya hai (it’s a manifestation of God),” he says.