Nithin Kamath, the founder, and CEO of Zerodha feels that India’s budding cryptocurrency industry has the ability to challenge new-age internet brokers and even established exchanges.
According to him, the brokerage and exchange industries are nearing product and pricing congestion, as well as being largely reliant on a tiny group of roughly 1 million active traders for revenue. Moreover, constructively upsetting this sector will be tough because of rules prohibiting negative brokerage (paying individuals money to trade) and the near-impossibility of ensuring that every trader earns money.
Despite the high risk and lack of basic knowledge, crypto outperforms stocks in terms of high leverage, volatility, and longer market durations. The AUM (Assets Under Management) of Coinbase, which stands at 180 billion dollars, and the crypto AUM of Robinhood Crypto, which is now at approximately 11.5 billion dollars, are both witnesses to this disruption in the United States.
“While Crypto is still small in India, we’re in a similar situation as the US, a few years back. The regulatory fear doesn’t allow regulated platforms to offer Crypto. Eventually, if the status quo on regulations continues, traders can move away & disrupt the broking industry”, Nithin Kamath tweeted.
India’s Cryptocurrency Disruption
With the rising popular use of cryptocurrencies, a thorough rehauling of Indian financial markets is clearly looming big. According to the 2021 Global Crypto Adoption Index published by blockchain research company Chainalysis, India ranks second in global cryptocurrency adoption.
CoinSwitch Kuber, India’s largest cryptocurrency exchange, has reached 10 million registered users, making it India’s largest crypto network with 7 million active users trading from over 4000 locations and a monthly volume of transactions of Rs 15,138 crores.
Notably, the majority of these investors (75%) are under the age of 24 and are concentrated (55%) in tier 2 and tier 3 cities such as Patna, Karnal, Ghaziabad, and others. According to the company’s estimates, the average crypto investment per user is around Rs 9,000 per month.
All of this necessitates an accelerated government response to the current state of cryptocurrencies, lest “we miss the bus,” as Kamath put it. While the center just announced that the cryptocurrency bill’s draught work is finished, the digital token will most likely be handled as a commodity in the country, subject to appropriate taxes.
“Sources in the government have clarified that the draft Cryptocurrencies Bill will treat digital currencies as commodities or assets and classified based on their end-use; that is payments, investments or utility purposes. This will certainly simplify taxation on crypto assets. This classification of digital currencies as assets is very positive and offers clarity for the entire industry. Additionally, the categorization would help bring about better investor awareness and bodes well for the long-term.” according to Mr. Sumit Gupta, Cofounder of CoinDCX.
Given the positive signs, several experts believe that greater clarification on the topic is required.
Only once the fine print is revealed will it be possible to determine which sections of the law prove to be useful.
However, Anant Deshpande, Co-founder of FinBox, credit risk expert, and cryptocurrency lover believes that this well-received action will force more retail investors, entrepreneurs, and venture capitalists into this area, who were previously unwilling to do so. The categorization before regulation method, on the other hand, has irritated some specialists. While they feel this is a significant departure from the previous iron-fisted government attitude, the taxes details might be a headache for policymakers.
“Considering that a cryptocurrency trader could make hundreds or thousands of trades a day on one or more platforms, the government would want to avoid a reconciliation and grey-zone nightmare that currently exists with cash transactions in the informal economy. Thus, perhaps it would be wise to first lay down regulations for the exchanges and financial intermediaries – both Indian and global to define liabilities, reporting, and tracking. The regulations from that overarching framework could trickle down to individual investors.” says Edul Patel, CEO, and Co-founder of Mudrex.
The bright spot, on the other hand, is the industry-wide consensus on how to approach cryptocurrencies from a sophisticated, use-case-based viewpoint. While the bill is a positive step toward bringing cryptocurrencies closer to mainstream banking, it must be viewed as a dynamic sector in which rules and regulations will need to be revised on a regular basis to accommodate fast developments, especially given the presence of basic law. “Just like the internet, cryptocurrencies have a multitude of use cases and hence a nuanced approach is best rather than one size fits all policy,” says Vikram Subburaj, Co-Founder and CEO of Giottus Cryptocurrency Exchange.