- The crypto ecosystem in India is crumbling under hostile government policies;
- India currently presides over G20, an important voice in global financial regulation;
- Crypto exchanges in India are under pressure as transaction volume evaporates,
- India is recording large crypto revenue outflows.
As highlighted in a previous post, regulation is likely going to be the major theme in the cryptocurrency industry in 2023. One country that needs to get its crypto regulatory framework in order is India.
As we know, cryptocurrencies and blockchain technology have captured the interest of people around the world for several reasons. From their ability to facilitate boundless global financial transactions without the need for a third party to the way they allow businesses to be conducted on the internet, the potential applications of cryptos are massive.
Image Source: Google Images
However, a significant obstacle to the adoption of cryptocurrencies in India is the massive regulatory uncertainty in the Asian giant. Although the country has begun taxing crypto activities as a whole, no concrete regulatory framework has been implemented to date, putting the fate of crypto exchanges in the nation in disarray.
The uncertainty over the status of cryptocurrencies has prevented many people from investing in them, and this has hampered the development of the crypto economy and the state of crypto exchanges in the country. However, one could argue that this could be the aim of the intense taxation campaign launched against the industry: to stifle and weaken it.
India Takes Presidency Role of G20
India recently began its one-year term as the president of Group 20 (G20). The G20 comprises 19 member countries across continents and the EU as a bloc member. Members of this group account for 85% of the global GDP, giving it significant sway over the affairs of the global economy. The G20 also invites non-member countries and international organizations such as the World Bank and the International Monetary Fund (IMF).
Source: Indian Gov Website
Why is the G20 important in this discussion, you ask?
Well, Gita Gopinath, Deputy Managing Director of the International Monetary Fund (IMF), said in December that India’s tenure as president of the G20 would likely be focused on three critical areas, including climate finance, debt relief, and, lastly, crypto regulation.
Considering the lack of a global consensus or framework for crypto regulation, India can leverage its newly acquired position to push for regulation in the space as it deems fit. With the absolute carnage that befell the crypto industry in 2022 and India’s stance on crypto, there could be some major advances in a global regulatory framework in 2023.
Gov Stance on Crypto Exchanges in India
The Reserve Bank of India (RBI) said in a report released on December 29, 2022, that it deems cryptocurrency or crypto assets highly volatile and that they show strong correlations with equities, which negates claims that digital assets are an alternative store of value because of their supposed inflation-hedging properties.
The apex bank also noted that policymakers around the world believe the crypto industry could become more integrated into the mainstream financial system and “divert financing away from traditional finance with a broader effect on the real economy.” This has always been one of the main worries of regulatory authorities around the world and has largely driven their actions so far.
As you might imagine, the Indian central bank is one of the loudest critics of the crypto industry. The RBI Governor, Shaktikanta Das, is likely at the helm of this stance by the RBI. Das recently said that “private cryptocurrencies” will cause the next financial crisis if they are not “prohibited.” Speaking at a conference, he said:
“Change in value in any so-called product is the function of the market. But unlike any other asset or product, our main concern with crypto is that it doesn’t have any underlying structure whatsoever. I think crypto or private cryptocurrency is a fashionable way of describing what is otherwise a 100% speculative activity.”
Image Source: Google Images | RBI Governor Shaktikanta Das
Das seems to have a bone to pick with crypto and doesn’t like the idea of it. The governor explained that cryptocurrency is the product of an idea that seeks to bypass or breach the existing financial system. He said that “they don’t believe in the central bank; they don’t believe in a regulated financial world. I’m yet to hear a good argument about what public purpose it serves,” emphasizing that his view is for cryptos to be prohibited completely.
The strict stance India holds towards cryptocurrencies is manifested in its taxation of the industry. In February 2022, the Asian country announced a 30% levy on all crypto gains and a 1% tax on every crypto transaction.
Crypto Exchanges in India are Watching Transaction Volume Dry Up
It’s only natural that the crypto ecosystem in the country will deteriorate as a result of the actions of the nation’s authorities. Crypto exchanges in the country, such as CoinSwitch Kuber and CoinDCX, have witnessed a significant dry-up of transaction volume.
A recent Coindesk report on the crypto migration from India showed that Indians have moved over $3.8 billion in trading volume from local crypto exchanges to foreign ones. A recent study by the Esya Center, a technology policy think tank, showed that a total of $3.85 billion moved from Indian exchanges to their foreign counterparts between February 2022 and October of the same year, largely as a result of the country’s stringent taxation policy.
The Esya Center discovered that crypto exchanges in India lost a whopping 81% of their trading volumes four months after the taxation policy took effect.
India’s seeming “war on crypto” could hurt the country’s financial system, considering the Asian nation has a massive amount of crypto investors: 115 million, according to Kucoin.
Crypto Exchanges in India have been hit the hardest by the aggressive taxation campaign as Indian crypto investors find safer environments to conduct their crypto activities. Nischal Shetty, the CEO of giant Indian exchange WazirX, said Indians would simply “find ways to not be part of the [domestic] system because people are not going to leave crypto.”
Additionally, Esya predicted in its report that “centralized exchange businesses would become unviable” in India, given the current trajectory of things.
One can only imagine what will become of the crypto ecosystem and exchanges in India in the next few years.