The Journey of Cryptocurrency in India

Spanning through a decade of ups and downs, certainties and uncertainties, the Supreme court of India has seemingly clarified the way forward for cryptocurrency in India. In this article, we map the complete journey of cryptocurrency, talk about its ups and downs and countless topics related to it.

This article covers the factual knowledge, and thus, we will discuss the following:

• What is Cryptocurrency?
• Present scenario of cryptocurrency in India
• Rise and fall of crypto in India
• Indian rules and regulations about cryptocurrency
• Do's and Don’ts of cryptocurrency
• The future of cryptocurrency in India
• Recent news with regards to cryptocurrency

What is Cryptocurrency?

Cryptocurrency is an innovative concept which works as a medium of exchange for purchasing goods and services online. The working of cryptocurrency uses cryptography. Let us briefly look into the functioning of cryptocurrency. For each cryptocurrency, a Distributed Ledger Technology (DLT) is used for keeping the database of all the transactions. This database is publicly used for storing information regarding financial transactions made through cryptocurrency. Also, this database with the entire list of transaction records (in cryptocurrencies) is known as Blockchain. Technically, this list or the records are known as blocks which are connected with the help of cryptography.

Check out the video below to find out some useful information on cryptocurrency in brief:

It was in 2018 when the Supreme Court had imposed a ban on the use of Cryptocurrency in India. But, recently, the ban got lifted by the Supreme Court. In April 2019, there was a draft framework that RBI issued for a regulatory sandbox. This was to include financial technology-related products and services, which also comprised of Blockchain.

Also, this article titled Cryptocurrency Wallets - A Beginner’s Guide may help you if you wish to delve deeper in the working of cryptocurrency. Another article titled Top 9 Cryptocurrency Trading Platforms will give you a deep insight into some popular trading platforms of cryptocurrency trading.

Moving ahead, we will take a look at the present scenario of cryptocurrency in India.

Present scenario of cryptocurrency in India

Lately, in March 2020 the ban which the RBI had imposed, was lifted by the Supreme Court, and trading in cryptocurrency has been made legal since then. With this lifting of the ban, you can trade in cryptocurrency, but with all the precautions.

Mentioning the lifting of the ban, NASSCOM tweeted, “We welcome the Supreme Court’s decision to lift RBI’s ban on trading in cryptocurrency. We believe that banning tech is not the solution, and a risk-based framework must be developed to regulate and monitor cryptocurrencies and tokens”.

As per the statement released by Fernando Angulo, Head of Communications at SEMrush, “cryptocurrency searches were seen growing and that too rapidly across India. Hence, it had been observed lately that people in the country wanted to invest in and buy with cryptocurrency.

It has been seen that comprehensive scrutiny of cryptocurrencies is still going on. With all things in place and a regulated crypto market, there is no doubt that cryptocurrencies can become new investment means for people”.

Despite some people being against cryptocurrency, India has witnessed a rise in the use of Bitcoin over the past few years. Moreover, according to the research paper Impact of Demonetisation on Bitcoin, the government is also thinking about introducing its own cryptocurrency so as to make it an alternative to Indian Rupee. This way, any value-degradation will not affect the economy as much. According to the same research paper, the Central Government of India has begun the consultation process to establish an inter-disciplinary committee so as to form a regulatory framework for crypto.

These changes will hopefully make a positive impact on the economy at large with regard to the diversity of funds.

Let us now go ahead and take a look at the rise and fall of crypto in India over the past few years.

Rise and fall of crypto in India

Cryptocurrencies witnessed quite a few ups and downs in their values ever since 2012 till 2020. From becoming a favourite alternative for making payments to disappearing in 2018 with the ban, we will discuss it all in brief.

2012

Cryptocurrency made its subtle entry sometime around in 2012 when small scale Bitcoin transactions had already started taking place across the country.

2013

Sometime in the year, 2013 Bitcoin began gaining some popularity within the country. It was in the year 2013, when the vintage era pizza shop known as Kolonial (Worli, Mumbai) became the first restaurant service in India to accept payments in Bitcoin. Gradually, after 2013, the rise in use of this parallel currency began.

2016

Finally, when demonetisation took place in the year 2016, more investments in cryptocurrencies started so as to lower the uncertainties. People started buying large orders of Bitcoin and other cryptocurrencies, which they would sell at a later date. The other well-known types of cryptocurrency are Ether (ETH), Ripple (XRP) and Litecoin (LTC). The use for online shopping and for investment in shares, among other things began in this year.

2017

There have been some apprehensions surrounding the use of cryptocurrencies ever since the Bitcoin crash in 2017. The crash in 2017 happened when the government sent out a warning against the use of the same and ruled out the possibility of fraud termed as ‘Ponzi schemes’. The government still holds the same viewpoint and may continue until and unless the crypto market gets regulated.

There is another reason as well for the crypto crash in 2017. Because of the impact of China’s warning against investing in cryptocurrencies, the crypto market was hit badly. The People’s Bank of China went against the investment in virtual currencies and alerted its people against the negative impacts like money laundering, suspicion of market manipulation and so on. This condition improved by the end of the year due to certain reasons like:

• Japan declared Bitcoin as a legal currency in April 2017.
• The U.S regulator, CFTC (Commodities Futures Trading Commission) gave nod to cryptocurrency trading.
• People gathered trust with regard to the use of cryptocurrencies in some other nations.

The graph below shows that the Bitcoin performed the lowest in 2017 but went up by the end of the year:

2018

In this year, cryptocurrency was involved in a serious legal procedure. And, in the budget speech of 2018-19, the Finance Minister announced that the government does not consider cryptocurrencies as legal tender. The government also mentioned that they will take all the necessary measures to make sure that the use of cryptocurrencies is eliminated from all activities.

Then, a ban was imposed on the use of the same by RBI considering its unregulated setup and risks.

Moreover, according to PRS Legislative Research, the draft Bill was passed in the same year, which prohibited any form of mining (creating cryptocurrency), issuing, buying, holding, selling or dealing in cryptocurrency in the country. However, the bill allowed the use of technology or processes underlying cryptocurrency for any experiment, research and teaching in other fields. It was found out that the DLT (Distributed Ledger) used by crypto could be used for payments, trade financing, insurance, and so on.

Cryptocurrencies saw many upward and downward movements in the past three years.

Let us see the visual representation of the change in BTC prices over the past seven years starting from the year 2014 till 2020, so as to get a fair idea about the price movement and the performance of BTC.

The BTC prices below are in dollars ($).

As we can see in the image above, from 2014 till 2017, the price remained more or less the same or around a particular price range (between $0 and $2500). Also, it can be analysed that somewhere in the year 2018, BTC neared $20K and then remained below $20K till now, i.e., the year 2020. It showed many upward and downward trends in between and also a sharp drop in the price somewhere near the year 2019.

The following video breifly explains  the role of Algorithmic Trading in the cryptocurrency boom:

Let us move forward, and find out about the Indian Rules and Regulations.

Indian Rules and Regulations about cryptocurrency

The rules and regulations for cryptocurrencies are not established yet, and this lack of the regulatory setup deprives the investors of the safety from several kinds of risks. We have listed the risks below, which are:

• Potential losses for the retail investors.
• Volatility can be dangerous to the economy of developing countries.
• Misuse of technology may lead to funding of harmful or dangerous organisations indulging in terrorism, trafficking, etc.

This unregulated cryptocurrency market is unlike the financial institutions and the markets, such as the third-party audits, financial reporting & disclosure, and so on.

Since the Supreme Court has lifted the ban on the use of cryptocurrencies, it is essential that the use of these currencies comes under the ambit of a regulatory framework. According to the Bloomberg report dated 20th March, 2020, India is already planning to regulate the cryptocurrencies and is expecting judgement from the Supreme Court on the same.

After that, India will take a final decision on regulating the market. Even after the regulation of cryptocurrencies is set in place, the permit to use them in payments system still remains a doubt. This is because people are not used to this virtual currency.

Going forward, let us take a look at the Dos and Don’ts while using cryptocurrency.

Do's and Don’ts of cryptocurrency

Since there are some apprehensions associated with the use of cryptocurrency and the crypto market, it is a must to be aware of the Do's and Don’ts so that we are able to maximise gains out of our investments.

Let us also see why you should take care of the Dos and Don’ts mentioned above.

So, basically, these are the reasons you must not forego the important points:

Non-Regulated System

This implies that cryptocurrency has a non-centralised or decentralised control. As opposed to centralised banking systems, trading in cryptocurrencies is not regulated by the central bank or any authorised entity. As we had read earlier, all transactions in cryptocurrencies get saved in a ledger which is publicly viewable. This shows that anyone can filter the account with maximum balance and try hacking the same.

Understanding the Functioning Helps

Before trading with cryptocurrencies, it is quite important to understand its functioning properly, otherwise, you may end up losing a big amount of fortune. You need to be well-aware of your public and private keys and be careful with the storage of the same since they are the only source of accessing the balance amounts in wallets. Losing your keys or public address can cost you all your cryptocurrencies in case someone else gets them. Furthermore, without a decent knowledge about how to predict a rise or fall in the market, you may not be able to trade at the most profitable time.

Hacking

Since addresses or keys are available in the public ledger, there are chances of someone hacking into your account and getting access to your balance amount. Since it is not regularised, there are no security measures to keep your account’s information safe. This means that you need a proper understanding of the technology which goes behind working of cryptocurrency.

Volatility

There is a large swing in this market as the financial leverage (loan) can lead to a lot of upward and downward trend. This leads to hindrance in the proper accounting of the number of cryptocurrencies owned.

Interested in learning about crypto wallets? Catch this short video on e-wallets in cryptocurrency framework that explains it briefly:

Let us now take a look at the future of cryptocurrency in India.

The future of cryptocurrency in India

Since cryptocurrency got a boost with the Supreme Court’s order recently about lifting the ban imposed, there seems to be a bright future for the crypto market. This ruling supports the trading of cryptocurrencies like Bitcoin and Ethereum. Still, the full fledged use of the crypto trading may take some time as RBI’s formal notification is awaited.

According to The New Indian Express, looking at the data with regard to the value of Bitcoin in the past one year, it rose from Rs. 2.7 lakh in March 2019 to Rs. 8.46 lakh in July 2019. But, in December 2019, it again fell to Rs. 4.69 lakh. Coming to the judgement of the Supreme Court recently, of lifting the ban RBI had imposed, the value of Bitcoin went up to Rs. 6.74 lakh in March 2020.

The Future looks bright now

The Supreme Court has lifted the ban imposed by RBI on cryptocurrency in the year 2018, saying that the ban was not proportional. This implies that RBI had not maintained the balance in the way it behaved with crypto firms.

This support of the Supreme Court, with its verdict, has brought back the confidence of Asia’s third-largest country, India in cryptocurrency.

All the Digital currency or Financial Technology firms are working towards reviving their plans of expanding businesses in India due to the return of crypto. According to the Economic Times, Singapore-based crypto firm ZPX will consider ramping up operations. Nischal Shetty, the co-founder of the crypto exchange WazirX, added that investment in Indian markets will begin this year, which is 2020.

Since the future seems to be bright, let us find out what the news articles have said and enhance our knowledge on cryptocurrencies and the market.

Recent news with regards to cryptocurrency

Now, we have a list of cryptocurrency related news which recently  All these articles give us a fresh update on the ongoing situation of crypto in the country. Read on and fuel your knowledge. Let us go in descending order with regard to the date and year of the news.

Derivatives growing (2020)

According to the news above, India is getting optimistic about investment in derivatives. Although, not just derivatives, but the investment of crypto in Derivatives is what the country seems to be witnessing.

Anti-Crypto law proposed 10-year jail for dealing in cryptocurrencies (2019)

According to Business Today, a year after the ban was imposed on dealing in cryptocurrencies, it was stated that there would be 10-year imprisonment for anyone who deals in cryptocurrencies. The law tightened its measures to curb the spread of crypto.

The Bitcoin ATM (2018)

Since the first Bitcoin ATM came into being after the RBI’s ban on cryptocurrencies, the one installed in Bengaluru was immediately seized.

Rise and fall of ICOs, exchanges in India (2018)

Ever since Initial Coin Offerings (ICO) came in as a favourite fundraising option for start-ups, there has been a rise and fall of the same which this article discusses in detail about.

Conclusion

In this article, we covered everything from cryptocurrency’s performance and position in India. We started with a brief overview of cryptocurrencies and then discussed a whole chunk of information to do with the crypto market in India.

The article was aimed to give you a fresh perspective on the cryptocurrency market in India. We also discussed various points associated with cryptocurrency so that we are cautious about the same and avoid getting into a difficult situation.

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Author: Chainika Thakar

Disclaimer: Any information regarding cryptocurrency in this article is intended to convey general information only. This article does not provide investment, legal, tax, etc. advice. You should not treat any information in this article as a call to make any particular decision regarding cryptocurrency usage, legal matters, investments, taxes, cryptocurrency mining, exchange usage, wallet usage, etc. We strongly suggest seeking advice from your own financial, investment, tax, or legal adviser. Neither QuantInsti^® nor the author of this article accept responsibility for any loss, damage, or inconvenience caused as a result of reliance on information published in, or linked to, from this article.