BENGALURU — Ravi Handa was among thousands of investors who lost a combined $230 million in a cyberattack theft this summer on WazirX, a now-defunct Indian cryptocurrency exchange. Remarkably, it hasn’t soured the 41-year-old’s appetite for digital currencies.
“Cryptocurrencies are a 10-year bet for me,” said Handa, who followed the sector for years before first investing in 2020 to diversify his assets. “The current value of my holding is about 2 million rupees ($23,800), and I will be very happy if it grows 10 times by then.”
Despite relatively low incomes and a tough regulatory regime, India has led the world in crypto takeup for the past two years, according to a report last month by New York-based Chainalysis, a blockchain data platform.
The trend has been driven mostly by investors hoping to take advantage of a booming market, and to some extent, developers who use digital currencies for blockchain-related projects, rather than for everyday use.
“Adoption is predominantly driven by investors and traders, and then developers in a smaller subset,” said Balaji Srihari, chief business officer at CoinSwitch Kuber, a local crypto exchange. “Let’s be honest, it’s easier to invest in crypto through an app than to learn blockchain technology.”
This widespread, grassroots adoption has come despite the country’s central bank warning that digital currencies could undermine the “authorities’ potential to determine and regulate monetary policy and [the] monetary system.”
Last year, India’s Financial Intelligence Unit issued show-cause notices to nine offshore cryptocurrency exchanges for non-compliance with local rules. In June, India fined Binance, the world’s biggest crypto exchange, some 188 million rupees for operating in violation of anti-money laundering rules.
Delhi imposes a steep 30% capital gains tax on digital assets, including cryptocurrencies, which is 2.5 times the tax levied on equities held for a year or more. Cryptocurrency sales are taxed at 1% of the total transaction value.
A self-regulatory body of advertisers in India has instituted guidelines for crypto ads that include calling out the risks associated with such investments. The move followed advertisement campaigns featuring celebrities launched by local exchanges, including CoinSwitch Kuber and CoinDCX, which count Tiger Global Management, Pantera Capital and Steadview Capital as backers, among others.
While such measures have not deterred Indians from taking up cryptocurrencies, the absolute value of investments has declined. According to Chainalysis, the value of cryptocurrencies traded in India fell to about $150 billion in the year to June, down about 40% from the same period a year earlier.
Handa’s belief in the sector has only grown, however, as financial institutions like BlackRock, Fidelity and Invesco launch exchange-traded funds that track cryptocurrencies, and with El Salvador becoming the first country in the world to recognize Bitcoin as legal tender.
While investment levels are far from the heady days, those “who had put their money on freeze and waited for things to recover, are coming back in,” Srihari said, adding that they have been encouraged by more regulations and the surge in cryptocurrency values.
Bitcoin has almost doubled to $60,652 over the past year, while Ethereum soared some 42% to $2,346. The two are the world’s most valuable cryptocurrencies — Bitcoin and Ethereum’s market values stand at about $1.26 trillion and $317 billion, respectively.
“Cryptos have evolved from being something like a wild, wild west in the beginning, with all kinds of things like initial coin offerings (a public flotation equivalent for cryptocurrencies) and non-fungible tokens,” Srihari said. “From the growth phase, it is now entering a mature phase where there are regulations, governance and taxation.”
Other Asian countries, including the Philippines, Vietnam and Indonesia, also made the top 20 in Chainalysis’s crypto adoption list.
Experts said while crypto investments can deliver outsize returns, volatility makes them risky bets. Unsuspecting investors are also susceptible to scams that promise fat returns.
The U.S. Federal Bureau of Investigation received 840 complaints from India about cryptocurrency-related issues last year, with losses totaling $44 million. The U.S. topped the charts with 57,762 complaints, followed by Canada’s 1,236 complaints, 962 in the U.K. and 841 in Nigeria.
CoinSwitch cautions users when they try to buy such volatile currencies, Balaji said.
“We don’t prevent, but we put up hurdles that could make people reconsider,” he said, referencing the company’s cautionary warnings.
Handa, who sold his tutorial business to SoftBank-backed Unacademy, is one such cautious investor. He has stuck to Bitcoin and Ethereum, and stopped buying more after retiring two years ago.
“I might restart investing if I gain enough confidence, but I am fairly sure I will not sell before 2030 under any circumstances,” he said. “I would rather have it go to zero and treat it as a lesson learned.”
source : asia.nikkei