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Indians see gold in crypto despite global crackdowns

Despite uncertainties globally as well as at home, Indian investors are increasingly routing their surplus funds to investing in Bitcoin, Ethereum, and the crypto asset class as a whole.

The fabricated volumes - amounting to trillions of dollars annually - improve exchange ranking and temporarily distort prices, researchers found. Photo: Reuters

Crypto has hit a rocky phase, from the UK’s ban on Binance, China’s moves to end crypto mining and South Africa’s huge Bitcoin heist, not to mention the Bitcoin crash amid all this, but there’s positive news in India


(AF) Ignoring the step-motherly attitude of policy makers globally, as well as uncertainties at home, Indian investors are increasingly routing their surplus funds to investing in Bitcoin, Ethereum, and the crypto asset class as a whole.

According to Chainalysis, a blockchain firm, investments into cryptocurrencies skyrocketed over the past year in India, despite continued regulatory pressure from the national government and central bank.

Crypto investments in India grew from about $200 million to nearly $40 billion in the past year, representing a phenomenal increase of about 200-fold, while the number of traders in India now totals more than 15 million, compared to 23 million in the US, according to its data.

Regulatory pressure

Chainalysis said India is experiencing continued growth demand despite ongoing pressures from authorities such as a warning from the central bank on concerns about cryptocurrencies as an asset class and a proposed government ban on crypto trading.

“Indian investors have been increasingly showing interest in investing in cryptocurrencies, particularly in Bitcoin and Ethereum. Although a small part of the investment volume comes from short-term investors seeking instant profits, there are a large number of investors in the country who actually believe in what cryptocurrency represents; and that is its biggest strength,” Avinash Shekhar, Co-CEO of ZebPay told Asia Financial .

“In fact, Bitcoin and Ethereum are two crypto assets where retail investors have come first despite past confusion over government’s stance, while institutions followed,” he added. ZebPay claims to be India’s first ‘one-stop shop’ for digital currencies.

Over the past few months, circumstances have hardly been encouraging for the crypto sector, which make Chainalysis’ findings intriguing.

In February, for instance, India unveiled a set of new draft rules – the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 – that sought to prohibit all private cryptocurrencies in India. However, the Bill is still under discussion and has not been turned into law yet.

A month later, India’s Ministry of Corporate Affairs (MCA) made amendments to rules in the Companies Act, making it mandatory for companies to disclose the profit or loss on transactions involving crypto or virtual currencies.

Companies have now been asked to disclose in their annual financial statements the amount of cryptocurrency held as of the reporting date.

Also, companies have to disclose in their financial statements details of deposits or advances taken from any person for trading or investing in crypto/virtual currencies held in India or overseas, the MCA said.

While these moves were seen by some as indications that the government is keen to regulate the use of cryptocurrencies, some felt that the moves were sending conflicting signals to investors, who were increasingly turning nervous.

‘Like gold’

“And no doubt the lack of clarity and the uncertainties have somewhat dented investors’ confidence and knocked down investment volumes,” Ajeet Khurana, founder of Genezis Network, a thinktank for crypto-start-ups, told Asia Financial.

“But what is interesting is, despite the uncertainties crypto investments still zoomed to $40 billion in a year. Had crypto not been this controversial, the numbers would have shot through the roof,” he said.

Clearly, crypto investors in India have substantially more money to invest in and treat crypto as an asset class, which means that it is reasonable to assume that such investors would continue to invest in it going forward, experts say.

Indian investors, they add, are also increasingly allocating a separate slot for cryptocurrency investment in their portfolios, and sometimes even comparing it with gold – seen as one of the best protected and suitable investment options by Indians, who own more than 25,000 tonnes of gold, according to estimates.

“The idea behind investing in gold is that it acts as a hedge, [many investors] consider cryptocurrencies perform the same function with the potential for growth and aspirational goals,” Darshan Bathija, CEO of Vauld, a crypto-based lending platform told Asia Financial.

Bathija said Bitcoin, in particular, has been gaining mainstream acceptance as a method of payment and as an asset class, increasing its appeal with regard to its potential for growth, especially in relation to gold, which has been fairly stable.

“For younger Indian investors, the appeal of a cryptocurrency, might be more than the traditional stable investments like gold and fixed-income investments, and they see it as an asset for the future,” he said.

India lagging behind

As a beneficiary of returns though, India still lags other markets, ranking 18 out of the top 25 countries by estimated Bitcoin gains in 2020, according to Chainalysis.

US ranked first at $4.1 billion followed by China ($1.1 billion), Japan ($900 million), the UK ($800 million) and Russia ($600 million).

But that’s not a concern, according to Khurana.

“Crypto investors in India do not need good news to keep investing in crypto; they just needed lesser bad news,” Khurana said.


Read More:

Global crypto exchanges keen to board India’s gravy train

India in quandary over its cryptocurrency policy

Indrajit Basu

Indrajit Basu is an India-based correspondent for Asia Financial and wears two hats: journalist and researcher (equity). Before joining AF he reported on business, finance, technology, wealth management, and current affairs for China Daily, SCMP, UPI, India Today Group, Indian Express Group, and many more. He is also an award-winning researcher. If he didn't have to pay bills, he would be a wanderer.


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