Understanding the current state of crypto assets in India

Crypto has been on Indian investors’ radar recently. It is estimated that India has 25 to 30 million investors with an exposure to this asset class. This is set to grow multi-fold over the next 3-5 years. But how do India and its government officially treat its status? We identify key trends around this and enlist the challenges the industry faces.

The last 3 years: From the sidelines to mainstream

Crypto, like many new technologies, was on the sidelines in India till 2020. Indians could sense a reluctance to even take cognisance of the sector. However, with increased adoption across the world and in India, the government’s stance on virtual digital assets (VDAs), as they are termed, has undergone a significant transformation. 

Now, the government has stated that it is taking a ‘studied approach’ to VDAs and trying to ascertain its usefulness or necessity or both. Recognition with a major legal mandate in the form of direct taxation of 30% and a 1% TDS followed in 2022. India has notably collected INR 157.9 crore in the past year via this initiative. 

This could have been much higher if not for traders using global exchanges that don’t follow Indian laws. This issue has also been addressed recently. Earlier this month, the Union government brought crypto under the Prevention of Money Laundering Act (PMLA) which puts the onus on users to declare their transactions and TDS. It also made it mandatory for crypto entities to adopt KYC and enhanced due diligence (EDD) procedures, just like banks and key financial institutions. Crypto exchanges are also made as reporting entities wherein they would red-flag suspicious transactions to the government. This has unified the local crypto ecosystem and has enabled platforms to follow consistent processes and services to their users.

On the whole, the government seems to be accepting crypto and the underlying blockchain technology rather than casting them away as ‘risky’ or even ‘banning’ them. 

Banking is still not a breeze given RBI’s concerns

The RBI continues to be doubtful of the ‘underlying value’ of crypto assets. Despite the launch of a Central Bank Digital Currency (CBDC) pilot late last year, RBI has not adequately supported the crypto ecosystem till date. 

Banks are still not forthcoming with partnerships with exchanges to help convert INR to crypto. NPCI even blocked UPI from being used for this purpose. However, we anticipate this to change in the coming year as the Union government continues to enhance its initiative to provide a safety net to crypto investors.

CBDCs and crypto conceptually align at certain points. Both CBDCs and cryptos are ‘safe stores of value’ and users can store both in digital wallets. In fact, the adoption of RBI’s CBDC (eRupee) is expected to give an impetus to the use of crypto assets as well if it is recognized as a safe on-ramp for INR to crypto transactions. 

From the government’s perspective, digital transactions can now be easily monitored, and money laundering operations are halted. The eRupee can be incorporated into decentralised applications with the development of blockchain technology, thereby making it a vital part of the Web 3.0 ecosystem.

Education and awareness:  the key challenge in crypto adoption

The foremost challenge in India’s crypto adoption is the awareness of its complexity and its associated volatility. Indian users understand that this is an asset class that can give disproportionate returns, but they often fail to manage the risks involved. 

Over-leveraging, investing in fraudulent projects, falling to scams etc. are some issues that the masses need to be educated on. There is a latent need for top-down programs that address awareness in vernacular languages now. That said, the services offered by crypto platforms are on par with global peers while the customer support ecosystem in various languages is being strengthened. 

The volatility of crypto assets is another key issue. We propagate an investor mentality (investing over multiple years) rather than a trader mindset (seeking short-term gains) to be successful in crypto. 

We believe in a bright future

Crypto and blockchain tech holds the potential to bring a change across industries for the benefit of the masses. As the government and the crypto sector work together, the challenges of greater adoption, regulation and awareness will hopefully be addressed soon. 

Author: Vikram Subburaj, CEO, Giottus Crypto Platform