- Nitin Kamath is the founder and CEO of Zerodha, an online broking platform for Indian investors.
- Nitin warns that the emergence of cryptocurrencies can be disruptive for the broking industry.
- He opines that India is in need of a catalyst government decision on cryptocurrencies so as to ensure the co-existence of digitized assets and the broking industry.
What did Nitin Kamath say?
Nitin Kamath, the founder and CEO of India’s largest discount broker Zerodha said that the emergence of cryptocurrencies has the potential to disrupt online and traditional broking in India. According to his opinion and recent data, Indian broking firms have run out of products to offer their customers. Moreover, the brokers are relying heavily on the one million traders for their revenue. On the other hand, the rules are different for cryptocurrency exchanges: there are no rules or regulations.
Which factors can disrupt Indian broking?
Cryptocurrency exchanges have had an advantage over the stock brokers in India. Crypto exchanges such as Coinswitch Kuber and Binance can offer up to 20x leverage to their customers to execute trades beyond their capital. On the other hand, leverage provided for trading in stocks is far less than that for cryptocurrencies. In addition to this, the Securities and Exchange Board of India’s new margin peak rule has further put restrictions on the use of leverage. This rule has ordered traders to maintain more margin for their trades, hence limiting leverage to the maximum extent. That can be a reason for traders to shift to cryptocurrency trading as more freedom is offered at the other side of the ocean.
Secondly, cryptocurrencies have proven to be more volatile than stocks. Unlike Indian stocks, cryptocurrencies do not have upper or lower circuits imposed on them. Trading in stocks is halted for the day if the circuit is met. Thus, traders may shift to cryptocurrencies to capitalize on the volatility by using high leverage. Volatility may be bad for swing traders however it is the best for the day-traders looking to profit off short-term trends.
Thirdly, trading for cryptocurrencies is operational 24/7, 365 days a year. On the other hand, trading in Indian exchanges: NSE and BSE is only between 9:15 am to 3.30 pm. Moreover, trading in cryptocurrencies does not stop even during worldwide holidays such as Christmas or traditional holidays either. Thus, traders can trade throughout the day as and when the opportunity arises. This can be another reason why traders may divert their attention from stocks.
Lastly, cryptocurrencies are known to be the best asset class with their returns outpacing the returns of any other asset class such as real estate or stocks.
Did crypto disrupt American broking?
Nitin Kamath opined that the mainstream adoption of cryptocurrency in the United States of America may have somewhat affected the broking industry. Emerging crypto exchanges such as Robinhood and Coinbase have seen a rsie in their assets under management (AUM) while those of stock brokers have declined.
He further stated that although interest in crypto is rather small in India, we may witness similar events that occurred in America. Due to regulatory fears, existing brokers are reluctant to offer crypto trading products. If a government decision of the future of cryptocurrencies is not declared soon, he fears that traders may shift to exchanges such as Coinswitch Kuber and Binance, hence affecting the Indian broking industry.
What is the solution for this?
A huge step towards the betterment for all would be some clarity provided by the Indian government and the Finance ministry. Kamath believes that the government’s update on the status quo of cryptocurrencies may help traditional brokers get clarity and thus eventually provide the relevant products to their customers. Some sources have said that cryptocurrencies will most likely be treated as commodities. However, until a bill is passed, everyone will be reluctant to undertake regulatory risks.
Nitin Kamath also believes that once a crypto bill is passed, retailers, entrepreneurs and even venture capitalists will enter the crypto market. It is not definite but it could prove to be a solution to the problem.
Also read: Stephen Curry Gets ‘laser Eyes’ With FTX