Early last week the Supreme Court (SC) of India deemed a 2018 notification by the Reserve Bank of India (RBI) barring financial entities including banks from working with cryptocurrency related businesses as illegal. The top court’s ruling caused a rise in the crypto activity in India and also a surge of newcomers trying to hop onto the crypto bandwagon.
After nearly two years in the waiting and multiple adjourned hearings, the ruling came as a breather and new growth opportunity for many in the Indian cryptocurrency space.
Mumbai-based cryptocurrency exchange Wazirx, which enabled fiat transactions for its customers, witnessed a surge in fiat deposits and new users joining the platform.
“Within the first few hours after the SC judgement, we had thousands of new users signing up on the platform and once the fiat transactions were enabled there was a massive surge in deposits from our customers on the exchange,” Nischal Shetty founder and CEO of WazirX told Moneycontrol.
WazirX, launched in March 2018, was acquired by Binance -- one of the largest cryptocurrency exchanges in the world -- late last year. It was the first acquisition of an Indian exchange by an international player.
Another Bangalore-based cryptocurrency exchange, Unocoin, one of the early entrants into the Indian cryptocurrency space, also enabled fiat transactions on its exchange platform the very next day of the SC ruling. “We enabled fiat transactions on the platform the very next day and immediately saw buy and sell orders in fiat being placed by our customers,” said CEO and co-founder Sathvik Vishwanath.
The rise in activity was expected as cryptocurrency users in India lacked a straightforward way to enter into the cryptocurrency markets, since the RBI notification in April 2018 had come into effect.
Even though the judgement came as a ray of hope to the industry and was celebrated among the community, it might have come a bit too late for an industry which had been gripped with fear, uncertainty and lack of clarity from the regulators for the past couple of years.
Koinex, which used to be one of India’s largest cryptocurrency exchanges, had its bank accounts frozen and with other operational hurdles piling up it was forced to wind up its operations early in June 2019. “Over the past 14 months it has become extremely difficult to operate a digital assets exchange business in India. After months of uncertainty and disruption, we have regretfully decided to shut down all exchange services and operations from 27th June, 2019,” read part of the notice Koinex posted on its website announcing its shutdown.
Many other companies working in the cryptocurrency or blockchain related space had to shut shop or move their business out of India.
“The ruling has come at the wrong end of the macro economic cycle. By now many cryptocurrency related companies and communities in the country have been wiped out,” says Joel John, an analyst at UK-based Outlier Ventures. “There are going to be major skill gaps now, especially with folks interested in this industry having had to move to other interest areas or geographies to continue working on the technology.”
According to Shetty, this has also caused a two year void in the space with India now having to play catch-up in the space with its global counterparts. “India has taken a step back in innovation in this space. While the US, EU and other Asian nations have been going ahead with blockchain and blockchain related technologies, India has gone behind two years in terms of skill set, startups and even VC investment in the space.”
Also with India not having a pre-existing blockchain industry to compare with, it will be difficult to estimate the damage this uncertainty has caused and lack of regulatory clarity has caused in the space.
On the other hand, according to Chandan Choudhury, Head of Crypto Research at the soon to be launched Bangalore-based cryptocurrency exchange Bitpolo, a ruling like this is better late than never and the space is at a very nascent to have a significant impact in India.
“The euphoria is gone now and only the serious and long term players and investors in the market will remain, which in a way will do good for the ecosystem as a whole,” he adds.
While, with this ruling, the road ahead looks clearer for the cryptocurrency and blockchain space, a lot more clarity is required in terms of regulations in this space.
According to Shetty, regulators and industry have to work together in order to build the right kind of framework to help regulate the space. “We, as part of IAMAI, are going to host a dialogue with the regulators to ensure that we can give them the right insights to help build a good framework for the space,” adds Shetty.