On March 5th 2020, India’s Supreme Court lifted Indian’s cryptocurrency ban. In the months since, Indian crypto exchanges have seen a huge surge in trading volumes and investment despite a significant contraction of the Indian economy caused by Covid-19
In April 2018 the Reserve Bank of India (RBI), India’s central bank, had ordered financial institutions to cut ties with individuals or businesses dealing in cryptocurrencies like Bitcoin.
For the two years the Indian cryptocurrency ban was in place virtual currency trading volumes in India tanked and a number of local exchanges were forced to close their doors. Then in March the three judge Supreme Court bench said that while the RBI had the powers to take pre-emptive actions in the financial market, they questioned the proportionality of the crypto ban and issued a ruling allowing exchanges to resume rupee transactions.
The decision permitted customers to once again freely swap back and forth between cryptocurrencies and India’s native currency. The news whetted the appetite of Indian crypto fans, and local exchanges including Zebpay, WazirX, and CoinDCX quickly enabled bank transfers for the rupee. In response, buyers rushed in – Zebpay reported server overload immediately following the verdict – and daily trading volumes on Wazirx, India’s largest spot exchange have risen by ~950% since the ban was lifted.
Cryptocurrency in India during Covid-19
Cryptocurrency has thrived in India during the pandemic. India has surpassed Brazil in Coronavirus case totals to become the second-worst affected country in the world after the United States with more than 4.2 million cases.
Economically this has translated to a sizable GDP contraction of 24.9% in the second quarter of 2020 with the construction, manufacturing & trade, hotels, and transport sectors being the most severely affected. The grim economic data has resulted in a depreciating Indian Rupee and a sliding domestic stock market. In contrast with the struggling economy, demand for cryptocurrency solutions and infrastructure to service this demand has grown despite the economic contraction.
Google trends search interest for the term “cryptocurrency “ in India spiked sharply in March and has been on a steady uptrend ever since.
The largest trading pair by volume on India’s most popular cryptocurrency exchange, WazirX, is USDT/INR – suggesting there is significant internal demand in India to trade domestic currency for US dollar equivalents. The next most popular pairs are the BTC/INR, ETH/INR, TRX/INR pairs, followed by a number of crypto-to-crypto pairs.
Peer-to-peer Bitcoin exchange service Paxful has seen a huge surge in demand for INR to BTC trading
Since the lifting of the Reserve Bank of India cryptocurrency ban, crypto infrastructure in the country has expanded on an injection of new investment capital. Cryptocurrency exchange startup CoinDCX raised a total of US$5.5 million from two funding rounds in March and May attracting several global investors, including Bain Capital. Launched in July and May respectively, new Bangalore based exchanges TradeHorn and BitPolo Technologies are targeting Indian crypto newcomers.
Also in July, Indian IT giant, Tata Consultancy Services, announced the Quartz Smart Solution for Crypto Services. The service offers enterprise trading solutions and is targeted at banks and financial services firms. In May its rival Infosys began a partnership supporting Bangalore financial transactions platform developer Matic Network.
Internet penetration in the country has also surged thanks to COVID-19 enforced economic lockdowns. An ICUBE data report prepared by insights and consulting company Kantar estimates that there are currently 574 million internet users in India. The number of monthly active internet users has grown by 24% since 2019, indicating an overall penetration of 41% last year. India has some of the cheapest internet rates in the world and its smartphone user base is expected to hit 820 million by 2022.
Another macro headwind that may be driving crypto adoption in India is the country’s growing demand for remittance services. According to The United Nations Migrant Stock report in 2019 in 2018, India was the highest recipient of foreign remittances at US$79 billion. India also sends around US$18.75 billion offshore every year for education, healthcare, and other purposes. Cryptocurrency based remittances services are being utilized in countries like the Philippines, Mexico, and Egypt for faster, cheaper, and more transparent cross border FX transfers. They utilize technology like on-demand liquidity that eliminates the need to pre-fund accounts in destination currencies.
Another Indian cryptocurrency ban coming?
Despite the lifting of the ban and the success of the #IndiaWantsCrypto social media campaign – led by Wazir X founder Nischal Shetty – some uncertainty still lingers over the Indian cryptocurrency industry as the Reserve Bank of India has revealed plans to file a judicial review petition over the ruling, citing concerns that restarting crypto trading could pose a risk to the banking system.
In addition, the ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019’ which was submitted last year by an interministerial committee headed by former Finance Secretary Subhash Chandra Garg remains in limbo. The bill is particularly draconian – prescribing “punishments for every activity from mining, holding, advertising, promoting, buying, selling to providing exchange services.”
Local experts are not overly concerned about either of these initiatives, though, as a reversal of a Supreme Court decision is exceedingly rare, and the March decision by the Court to lift the RBI ban means it is unlikely a new bill to ban crypto will be passed by the Indian legislature.