Global technology majors, which are keen on India, are also looking for some indications from the government before bringing in their exchange businesses.
The Indian crypto industry is in the middle of a boom. Not just local traders and tech enthusiasts but even global cryptocurrency majors want a play in the second coming of virtual currencies in the country.
A few of them have started initial operations but most are waiting for clarity from the government on digital tenders before committing their dollars in the Indian market.
Industry insiders saw millions of dollars worth of business is being done every week, with the lockdown pushing up the volumes. The government, they say, is losing out on precious revenue by not coming up with a regulatory mechanism.
“Regulations will bring platforms into the economy, growing trading volumes will also ensure more revenue for the government, wealth for genuine traders and also ensure fair pricing on booking trades, overall it will be a win-win,” said Naveen Surya, chairman of the Fintech Convergence Council, an industry body for fintech startups.
A player like Ripple, which offers international remittance through RippleNet in partnership with Indian banks, has not launched its liquidity product in India because of regulatory challenges.
XRP can help in transactions across many remittance corridors. Something similar can be offered in India as well, to open up international remittances through crypto on Ripple.
New York-based Paxful is also looking to set up a base here to tap into the growing interest in digital currency.
In its current form, trading in virtual currencies is not illegal in India but remains a grey area in the absence of guidelines from the government and the Reserve Bank of India following a Supreme Court order earlier this year.
The court on March 4, 2020, shot down an RBI order that banned banks from dealing with crypto accounts leading to multiple exchanges coming back to life.
Moneycontrol wrote on May 15 that exchanges were seeing a huge jump in business as coronavirus forced Indians indoors and tanked the economy.
Investors, too, see potential in this space. Binance acquired the Indian crypto platform WazirX. Recently, Mumbai- based CoinDCX raised equity rounds from Polychain Capital and Bain Capital Ventures.
But the question remains: what is the status of cryptocurrency dealings in the country?
The RBI has not issued a circular allowing banks to trade in cryptocurrencies. Some payment gateways and mid-sized banks, however, started working with these exchanges, as the ban had been scrapped, sources said. But large banks have stayed away.
The central bank had not responded to Moneycontrol’s email seeking comments.
The last the government addressed the issue was in 2019 when the finance ministry tabled a draft bill to ban cryptocurrency. Mining, holding, selling, issuing, transferring, or use of cryptocurrency was punishable with a fine or imprisonment of up to 10 years, or both, it said.
It also talked about a government-mandated legal digital tender, saying the RBI may also notify a digital currency recognized as legal tender in a foreign jurisdiction, as a foreign currency.
A top fintech entrepreneur, who spoke on the condition of anonymity, said the bill could have been shelved. After the Supreme Court order, the government was unlikely to go for an outright ban that would push the business into grey market, making it more difficult to be regulated.
“We are working with IAMAI to set some basic standard operating procedure for crypto exchanges like mandatory KYC norms for every trader to be followed, no cash dealings and others,” WazirX cofounder Nischal Shetty said.
The Internet and Mobile Association of India is a not-for-profit industry body working for the expansion of the digital economy.
With the coronavirus outbreak keeping the government busy, the industry is not expecting any big moves at this moment.
As of now, it can make in-principle nod for players to start exchange business mandatory, Shetty said.
“Even historically, stock markets had issues. Now, look where regulations and digitisation have taken the Indian stock exchanges. Regarding crypto, a similar approach should be taken by the government and the central bank,” said Surya of Fintech Convergence Council.
Lack of regulation has hurt Indian traders in the past.
A crypto trader, who spoke to Moneycontrol on the condition of anonymity, said in 2017-18 many people like him lost money because they were buying bitcoins and other cryptocurrencies from unknown platforms. He lost a quarter of a bitcoin, which now costs Rs 7.3 lakh apiece.
BitConnect ran a Ponzi scheme on bitcoins and disappeared with more than Rs 20,000 crore of wealth in 2018.
“Sometimes unsuspecting traders would make the payment but bitcoins would never get credited. In some cases, the exchange disappeared overnight and all the money was lost,” he said.
These platforms and their founders should have a public identity and operate within a regulatory framework, which will go a long way in restoring confidence in the sector that is expanding rapidly.
Shetty from WazirX said this time the crypto boom was being fuelled by traders who were more aware and there was a lot of material available online to educate people about frauds and risks.
Through Youtube videos and blogs people were trying to raise awareness on crypto and the risks in trading in virtual currencies. 2020 was looking way different from 2017 and 18, he said.
India received massive global attention when trading volumes shot through the roof in 2016 and 2017.
Many global crypto enthusiasts realised the potential of a country with a billion-plus population, tech prowess and surplus wealth. While many players went away when the RBI announced the ban in 2018 interest has been renewed now.
Sagar Sarbhai, who heads the government and regulatory affairs for Asia-Pacific at blockchain company Ripple, said given the investor appetite, India had the making of a large crypto player. But unless the government moved quickly, the opportunity would pass and other emerging economies would be favoured by global players.
“We need banks to participate to open the full potential of our exchange business and banks will only do that after they receive a green signal from the Reserve Bank of India,” said Navin Gupta, managing director for India, Middle East and North Africa at Ripple.
Ripple uses crypto asset XRP to offer remittance across multiple corridors. Something similar can be offered in India as well, to open up international remittances through crypto on Ripple. Currencies like Indian Rupee, Dollar, Pounds etc which are official currencies of countries are referred to as fiat currency.
Paxful reported weekly volumes of a million dollars in the first few months of 2020. Since May, the volumes had jumped further, it said.
Speaking with Moneycontrol from New York, Ray Youssef, chief executive officer of Paxful, said Indians were showing a lot of interest in cryptocurrencies and India along with Africa would emerge as the leaders in the sector in the long run.
“We want to solve genuine pain points and drive financial inclusion through the peer-to-peer market. Those who are looking to use our platforms for illegal activities should stay away,” he said.
Crypto to some is a technological leap from the traditional system of currency baskets followed by central banks.
For some, it is a speculative asset almost akin to gold or other commodities. For still others, it is an existential threat.Experts believe while complete disintermediation through blockchain will take away control of the central bank over currency management, a ban will result in India losing out on future technology. Now it is up to the government to make the next move.