Understand the current state of crypto assets in India

Crypto has recently been on the radar of Indian investors. It is estimated that India has 25-30 million investors exposed to this asset class. This should multiply over the next 3-5 years. But how does India and its government officially treat its status? We identify the main trends in this regard and identify the challenges facing the industry.

The last 3 years: from marginality to mainstream

Crypto, like many new technologies, was on the sidelines in India until 2020. Indians could feel a reluctance to even take notice of the industry. However, with increased adoption across the globe and in India, the government’s stance on Virtual Digital Assets (VDAs), as they are called, has undergone a significant transformation.

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

It could have been much higher if not for traders using global exchanges that do not follow Indian laws. This issue has also been addressed recently. Earlier this month, the Union government introduced crypto under the Prevention of Money Laundering Act (PMLA) which requires users to report 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 major financial institutions. Crypto exchanges are also done as reporting entities in which they would report suspicious transactions to the government. This unified the local crypto ecosystem and allowed platforms to follow consistent processes and services for their users.

Overall, the government seems to be accepting crypto and the underlying technology of blockchain rather than dismissing it as “risky” or even “banning” it.

Bank still not a breeze given RBI concerns

The RBI continues to doubt the “underlying value” of crypto assets. Despite launching a central bank digital currency (CBDC) pilot project late last year, RBI has not sufficiently supported the crypto ecosystem till date.

Banks are still unwilling to partner with exchanges to help convert INR to crypto. The NPCI even prevented the use of UPI for this purpose. However, we expect this to change in the coming year as the Union government continues to improve its initiative to provide a safety net for crypto investors.

CBDCs and crypto conceptually align at certain points. 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 also expected to boost the use of crypto assets 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 controlled and money laundering operations are stopped. eRupee can be integrated into decentralized applications with the development of blockchain technology, making it an essential part of the Web 3.0 ecosystem.

Education and Awareness: The Biggest Crypto Adoption Challenge

The main challenge of crypto adoption in India is the awareness of its complexity and 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-indebtedness, investment in fraudulent projects, scams, etc. are issues on which the masses need to be educated. There is a latent need for top-down programs that address outreach in vernacular languages ​​now. That said, the services offered by the crypto platforms are comparable to those of their global counterparts, while the customer support ecosystem in different languages ​​is strengthened.

Another key issue is the volatility of crypto assets. We propagate an investor mindset (investing over several years) rather than a trader mindset (seeking short-term gains) to succeed in crypto.

We believe in a bright future

Crypto and blockchain technology has the potential to bring change across industries to benefit the masses. As the government and the crypto industry work together, the challenges of increased adoption, regulation, and awareness will hopefully soon be resolved.

Author: Vikram Subburaj, CEO, Giottos Crypto Platform