Indian crypto industry expanding, regulators seem reluctant to engage

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The people of India are awaiting access to crypto banking services, as British-based fintech firm Cashaa has collaborated with India’s United Multistate Credit Cooperative Society to launch a crypto-centric banking company called Unicas that will initially open 34 branches in Northern India and plans to have expanded to 100 branches by next year. 

Considering that India is largely a savings-driven economy, Unicas will also offer crypto saving accounts that pay interest on deposited crypto. This could act as a catalyst for co-operative credit societies in India to enter the market and make the most of this opportunity.

But overall, the Indian crypto industry has seen enormous growth both in volumes and new clients since its Supreme Court removed a two-year ban on banks servicing cryptocurrency exchanges in March 2020. Nischal Shetty, founder of WazirX — a crypto exchange based in India — told Cointelegraph:

“The Indian crypto ecosystem has been growing tremendously since the Supreme Court lifted the banking ban on crypto in India. […] The positive verdict was immediately followed by a lockdown due to the COVID-19 pandemic. This period has also given people more time at hand to read about crypto and participate in it.”

Ashu Swami, the chief technology officer of Apifiny — a cryptocurrency liquidity and solutions provider based in New York — attributes this growth to the increasing evidence of Bitcoin (BTC) becoming a safe haven and the ease of making inward remittances to the country with cryptocurrencies. “Senders are realizing that virtual currencies are a more efficient medium,” hence the growth in demand. He further added:

“The INR has been highly volatile, having depreciated over 80% vs. the USD in the last decade. Gold is very hard to trade and has high transaction costs; real-estate has been in a slump since the demonetization of 2016; and the stocks are at record high valuations, and many believe they are due for a correction any time now.”

As a result of these factors, according to statistics provided by Apifiny, almost all of the major international crypto exchanges have reported a traffic increase from five to 10 times from Indian users in 2020. Meanwhile, local crypto exchanges in India have reported a tenfold increase in registrations in 2020, which is 2.5 times the global average of 400% year-over-year growth.

Big players enter the Indian market

With Binance having acquired WazirX, Bain & Company funding CoinDCX, and Polaris Capital beginning to invest in the crypto market in India, it’s evident that big players have recognized the underlying potential that the Indian market has for crypto and have begun to allocate capital to participate in this growth.

Even Tata Consultancy Services, an Indian multinational information technology and consulting firm, launched its Quartz Smart Solution earlier this year in July that aids financial institutions to offer cryptocurrency trading. Shetty believes it all adds credibility to the industry: “TCS works with large companies as their clients. We anticipate large financial institutions probably starting a pilot with this to go full-fledged with their own crypto offering to their clients.”

This indicates that mainstream Indian banks are interested in entering this industry the same way DBS Bank, Singapore’s largest commercial and retail bank, did: by launching cryptocurrency and custody services. Even PayPal announcing that it will start allowing cryptocurrency payments in 2021 is bound to increase the number of investors in India.

In the past, PayPal didn’t have a smooth entry into India even with fiat-based payments. Technically, the Reserve Bank of India has never prohibited the company from operating in India, but in 2010, PayPal shut down its services. According to Swami, this was due to Indian Know Your Customer standards and licensing regulations being too onerous and thus a hindrance to its ease of customer use. In 2017, PayPal launched a new India-friendly version, but the market was already saturated by indigenous startups. Swami believes crypto could present a new opportunity for PayPal:

“With the right confluence of events, such as the Indian government allowing the virtual currencies and the indigenous startups slow in adopting blockchain (which seems to be the case so far), PayPal can find itself in a unique position to make it easy for crypto accepting merchants to onboard on to PayPal’s system and win the India market this time around.”

The thriving crypto industry in India is also driven by innovators who develop new products for Indian investors inline with their savings-oriented investment behavior, offering them more lucrative returns than the traditional asset classes. Gaurav Dahake, CEO of BitBNS — an Indian cryptocurrency exchange — told Cointelegraph: “Trading is one aspect of it. But the other interesting aspect is new development and new product launches.”

Additionally, the first Indian business-to-business exchange, DigiTx, launched on Oct. 27, which may also push more businesses to indulge in the cryptocurrency market either directly or through their various subsidiaries.

Regulators continue to be ignorant

The only factor holding back the industry at the moment is perhaps the most important one: the lack of a clear regulatory framework, within which crypto firms can operate. Although the recent “leaked” information of another incoming ban from the government has been criticized by experts close to the matter, there still seems to be no word on how the government or the RBI sees this industry despite various efforts by crypto firms to indulge in this conversation and even assist in every way possible.

WazirX is a part of the Internet and Mobile Association of India and is continuously pushing this conversation with governing bodies. Shetty further elaborated on this:

“The IAMAI is working on a code of conduct for crypto exchanges in India so that India is not lagging behind in terms of regulation. We have a draft version ready and are working on updating the guidelines in line with the technology changes that have happened in the last few years. […] This will help curb the illegal activities as well as scams. This way, exchanges can also help the law enforcement agencies as well as educate masses.”

In addition to WazirX, CoinDCX and a few other exchanges are also proactively implementing KYC verification and regulatory controls to disprove the RBI’s statement, which implied that virtual currencies can only be used for nefarious purposes such as drug trafficking and terrorism financing. Currently, the Indian governing bodies seem to be turning a blind eye to the thriving crypto industry with no plans to discuss its future in India. What’s more, it isn’t even featured on the list of agendas up for discussion in the winter parliament session beginning in November.

Related: Indian Banks Act Slow to Accept Crypto Industry Despite RBI’s Approval

Swami is of the opinion that the government is looking for ways to reap benefits from this industry without being subject to any of the risks involved: “Our hopes are limited from this section. We are more hopeful of the market forces and industry to prevail.”

Crypto exchange BuyUcoin has even suggested a regulatory sandbox approach to be implemented. It is highly important that the governing bodies step in with a clear regulatory framework that helps the industry to grow and minimize any possible scams.