Cryptocurrency can disrupt online broking, says Nithin Kamath

Cryptocurrency (Representative image: Reuters)

Entrepreneur and CEO of Zerodha, Nithin Kamath believes that the nascent, currently evolving cryptocurrency scene in India has the potential to disrupt new-age online brokers and even traditional exchanges.

Per him, broking and exchange businesses are reaching a transformation saturation in terms of products and pricing, besides being heavily reliant on a small group of around 1 million active traders for revenue. Furthermore, positively unsettling this space will also be difficult since regulations do not allow for negative brokerage i.e. paying people money to trade and it is next to impossible to ensure every trader makes money.

Crypto overscores stocks when it comes to high leverage, volatility, and longer market durations, despite the high risk and lack of fundamental information involved. The revolution is quietly underway in the US, with testimonies to this disruption being the AUM (Assets Under Management) of Coinbase, which stands at 180 billion dollars, and the crypto AUM of Robinhood Crypto, which is currently at around 11.5 billion dollars.

“While Crypto is still small in India, we're in a similar situation as the US, a few years back. The regulatory fear doesn’t allow regulated platforms to offer Crypto. Eventually, if the status quo on regulations continues, traders can move away & disrupt the broking industry”, he tweeted.

Crypto Disruption in India
A comprehensive rehauling of Indian financial markets with the increasing mainstream adoption of cryptocurrency is evidently looming large. India ranks second in global cryptocurrency adoption, per the 2021 Global Crypto Adoption Index by blockchain data platform Chainalysis.

In fact, popular cryptocurrency exchange CoinSwitch Kuber also hit 10 million registered users this week to become India’s largest crypto platform with 7 million active users transacting from over 4000 cities and a monthly transaction volume of Rs 15,138 crores. Notably, most of these investors (75 percent) have an average age of 24 and are located majorly (55 percent) in tier 2 and tier 3 cities like Patna, Karnal, Ghaziabad, and more. Per the company’s reports, the average crypto investment is about Rs 9,000 per month per user.

All of this demands a catalyzed government reaction on the status quo of cryptocurrency, lest, as Kamath mentioned, "we miss the bus". While the center recently notified that the draft work on the cryptocurrency bill is complete, the digital token will most likely be treated as a commodity in the country, subject to applicable taxations.

Per Mr. Sumit Gupta, Cofounder of CoinDCX, “Sources in the government have clarified that the draft Cryptocurrencies Bill will treat digital currencies as commodities or assets and classified based on their end-use; that is payments, investments or utility purposes. This will certainly simplify taxation on crypto assets. This classification of digital currencies as assets is very positive and offers clarity for the entire industry. Additionally, the categorization would help bring about better investor awareness and bodes well for the long-term."

Despite the positive indications, some experts feel that there needs to be more clarity on the whole subject. Only when the fine print is released would one be able to truly decide which segments turn out to be beneficial from the bill.

However, there is no doubt that this move, well-received by the industry will push more and more retail investors, entrepreneurs, and venture capitalists in this space, who were earlier hesitant to do the same, thinks Anant Deshpande, Co-founder, FinBox, credit risk expert and a cryptocurrency enthusiast.

However, the classification before regulation approach has also bothered some experts. While they believe this to be a great shift of stance from the erstwhile iron-fisted government approach, the taxation specifics could hold a potential nightmare for the policymakers.

According to Edul Patel, CEO & Co-founder of Mudrex, “Considering that a cryptocurrency trader could make hundreds or thousands of trades a day on one or more platforms, the government would want to avoid a reconciliation and grey-zone nightmare that currently exists with cash transactions in the informal economy. Thus, perhaps it would be wise to first lay down regulations for the exchanges and financial intermediaries - both Indian and global to define liabilities, reporting, and tracking. The regulations from that overarching framework could trickle down to individual investors.

The silver lining, though, remains the unanimous industry take on approaching cryptocurrency from a nuanced, use-case-based perspective. While the bill is welcome in bringing cryptocurrency a step closer to regular finance, it must be seen as an evolving field where policies and laws will constantly need to be revisited to accommodate rapid trends, with the presence of fundamental law. As Vikram Subburaj, Co-Founder and CEO of Giottus Cryptocurrency Exchange explains, “Just like the internet, cryptocurrencies have a multitude of use cases and hence a nuanced approach is best rather than one size fits all policy”.