Do You Even Crypto, Bro? 🤪
Go slow, it's just crypto Don't tip-toe Read this to know more about the lingo
What a crazy month it has been, huh? Almost like deja vu of the same time, last year. Except, if you are a follower of Elon Musk on Twitter. 🙃
Oh, also, if you understand blockchain, cryptocurrencies and all those fancy words related to Dogecoin, but majorly Elon’s tweets.
By now you know, we’re here to talk a little on cryptocurrencies - some global trends, the growing buzz in India, bust some myths along the way (spot the ghosts! 👻) and make a case for cryptos. Basically —
First things first, let's zoom out a bit, shall we?
Here's a look at the legal status of Bitcoin across the world thanks to dear old Wikipedia -
Looks like a fair amount of green, won't you say?
Many countries have taken a cautious, yet accepting outlook towards cryptocurrencies and we're all for it. Here are a few we found interesting:
Jamaica - The government launched a campaign to build awareness of cryptocurrencies as part of increasing general financial literacy and understanding of cryptocurrencies.
Russia - has a digital financial assets law that classifies cryptos as property and not legal tender. Taxes are applicable on mining beyond a certain limit.
Israel - Capital gains tax @ 25% each time a cryptocurrency is sold.
BUSTED 👻 - Crypto is treated as an asset class in many countries!
Some good examples of KYC/AML checks:
South Korea - Adult South Koreans may trade on registered exchanges using real-name accounts at a bank where the exchange also has an account. Both the bank and the exchange are responsible for verifying the customer's identity and enforcing other anti-money-laundering provisions.
Thailand - Thai based bitcoin exchanges can only exchange Digital Currencies for Thai Baht and are required to operate with a Thailand Business Development Department e-commerce license. They are also required to have KYC and CDD policies and procedures in place.
A common denominator across many countries is the fact that while cryptos face a banking system ban, holding of cryptos is not illegal. Pretty much the present situation in India.
BUSTED 👻 - just read that again 👆🏼
However, having no regulatory measures in place for crypto exchanges and wallets and taxation of capital gains/losses seems like an invitation for a blunder to happen. And that's where we need the focus to be.
BUSTED 👻 - legality without regulations is risky and worth remembering before buying cryptocurriencies.
Okay, now let’s get our hands dirty with some desh ki mitti 🇮🇳
Before knowing the hype, lets’ see how we got into the month of May. Besides India’s COVID graph, there’s a SIGNIFICANT rise in google searches for the words “cryptocurrencies” and “dogecoin”.
A few questions pop up seeing this.
😰 Is it as scary as the sudden rise in COVID cases?
🤔 Why are people suddenly curious?
🤨 Or are they just new terms people are searching for?
Well, these are definitely not new terms, let’s go a few…Nah, over 12 years back.
2008: Satoshi Nakamoto published the first-ever e-cash and named it Bitcoin.
2010: Pizzas were bought using crypto (we're not even surprised if you are craving some rn)
2011: While we saw new currencies being launched, Bitcoin was shamed for being used on the dark web.
2012 - 2017: Bitcoin’s journey from $5 to $1000, yes 200x. India saw early crypto exchanges like Koinex, Unocoin, and others launch during this period.
2017: PILs filed to Supreme Court to decide between ban or regulate.
2018: two numbers, one decision. 99% volumes drop + 95% jobs vanished on RBI preventing banks from dealing in any crypto-related transaction.
2019: Private Cryptocurrencies banned. (Ouch)
2020: Supreme court uses utmost supremacy and cancels RBIs ban on Crypto.
BUSTED 👻 - Cryptocurriencies are currently legal in India.
2021: Government in talks to launch its own crypto (yup, it doesn’t make sense if you’re wondering)
Banks refuse to deal with crypto, while we write this, even fintech companies like Paytm Payments bank have opted out of dealing with crypto transactions.
Now if y’all think that’s too many changes, new developments in the space have been happening daily. The most recent one being the government setting up a committee of experts to consider formulation of digital currency regulations.
This one surely gave us some hope.
While the original report proposing the ban was drafted in 2019, it is now being considered out of date (thank god!) given the scale of developments in the segment since then.
Fun fact - Ex-finance minister, Subhash Chandra Garg, who chaired the committee which drafted the original proposal on the ban is now one of the many crypto-positive industry folks who are rallying the case for legalising cryptos.
Okay, we want to stop and say, when it comes to crypto regulations, we think our Sarkar is procrastinating big time. Janta wants to know, ban or no ban?
Let’s now look at some numbers to get a fair idea of traders' participation in India.
Indians hold approx Rs. 10,000 crore worth of crypto as of May 2021.
“Risk hai toh Ishq hai” just got too serious.
Doge might or might not reach the moon, but the trading volumes and user base for two of India’s largest startup crypto exchanges surely is!!
Wazir X (acquired by Binance within 20 months of launch)
Founding year: 2017
Valuation: over $1 Billion
Used Base: Over 2 Million (doubled up recently in ONLY 78 days)
Trading Volume: $6.1 Billion for Quarter Jan-Mar 2021 (405% up QoQ basis)
CoinSwitch Kuber: Total funding $40.6M
Founding year: 2017
Valuation: $500 Million
User Base: 4.5 Million (up 350% since Jan 2021)
Trading Volume: $5 Billion for the year 2020-21
Wait, we have more.
Since March 2021, high chances all of us might’ve seen a new covid relief donation link every morning. The crypto megastar and founder of Polygon (MATIC), Sandeep Nailwal started running a crypto-led COVID relief fund which btw, might've raised more money than any other campaigns. Ethereum’s co-founder Vitalik Buterin donated $1 billion dollars worth of Shibu coins and $2 million in Ether. Our own Aussie cricket player, Brett Lee also donated 1 bitcoin (~INR 40 Lakhs) in this fund.
All this and we still plan on banning crypto? Oh boy. 😖
So what should the governments do?
We're no policy experts, but this is what we feel should be the ideal first steps -
Classify cryptocurrencies as virtual currencies or alternate assets or commodities.
Define taxation rules for gains and losses.
Regulate and license cryptocurrency exchanges and e-wallet providers in a supportive manner.
Create public awareness on the subject. (Cryptocurrencies Sahi Hai, maybe?)
Buy some DOGE and go to the moon! (We're kidding. Or are we?)
Why does this make sense for India though? And why should the government even consider legalising cryptocurrencies?
Here's our argument -
A Case for India To Not Ban Cryptocurrencies
Balaji Srinivasan has done an outstanding job in putting forth a detailed argument on this topic and we'd highly recommend you read it.
Before we even begin, the simple fact to be stated is that cryptocurrencies cannot be 'banned'.
The entire concept of cryptocurrencies is based on the decentralisation of power, therefore no one institution or person has actual control over it. (Except, maybe, Elon Musk. *sigh*)
A so-called 'ban' would only make holding cryptocurrencies illegal, not stop people from actually holding them.
Think of it this way - piracy is illegal in India under the IT Act 2000. Remember the whole 'torrent websites ban' that took place a few years back?
Yeah, that. Has that stopped people from still pirating movies and TV series online?
*crickets chirping*
Now, we're not trying to imply anything here directly, but if you know you know.
A legit crypto ban would mean entirely shutting down India's connection to the outside world - online and offline. Confiscating memory storage devices of all manners, invading the already fragile privacy of citizens and an entire disruption of a free nation.
Seems dystopic? Very much so.
BUSTED 👻 - No, once the ban is in place you cannot send crypto to your friend in the US and cash out 😏 We hope the Big G (govt.) is kind enough to give a small window for liquidating our holdings as they did during DeMon. 🙃
So let's rephrase -
A Case for India to Legalise Cryptocurrencies
🌐 Internet : 2000s :: 🤑 Cryptocurrency : 2020s
The entire decentralised revolution and all of its components including blockchains, cryptocurrencies, tokens, smart contracts, dapps, yada yada are being heralded as the next evolutionary phase of our digital economies - similar to what the internet was to the fragmented world in the 2000s.
A 'ban' on cryptos would mean a ban to an extent on the underlying technologies as well. At this point, we might not be able to fully comprehend what a ban actually means, but it won't take much to imagine parallels.
Think of what a ban on the internet in the 2000s would have done to us. The world would have continued to become hyper-connected while we would be left isolated. Slow pace of development, negligible international presence and so much lost potential.
We are living in a rapidly digitizing world and the natural evolution of currencies from physical to digital is bound to happen - it already is!
While the government is planning for a digital Rupee, which is an amazing development, maintaining a ban on private or decentralised cryptocurrencies is like closing the door on broader innovation.
Now you might say - but why do we need cryptocurrencies if we're developing a digital rupee?
That takes us to our second point.
The FOMO is very real 😣
It's a valid point that we don't need cryptos when we are going to have a digital rupee, because of course, people will prefer to transact in the most widely accepted currency in a region and not something which even a chai-wala wouldn't accept.
BUSTED 👻 - this is just the case for India though, people do actually buy coffee using coins in some countries!
Fiat currencies tick all three boxes for functions of money -
Medium of exchange = people can use it to buy & sell things.
Unit of account = people can use it to account for things.
Store of value = people can use it to create wealth.
While cryptocurrencies are as good as fiat currencies for 2 & 3, they fall short in acting as a unilateral medium of exchange. In no near future is your chai-wala going to sell a cutting chai for a dogecoin.
But, hey, that's okay.
The point we're trying to make here is that cryptocurrencies have a long way to go to become as widely accepted as fiat currencies. Central Bank Digital Currencies (CBDCs) like the digital rupee, digital yuan, digital dollar - all in the process of development - will get there sooner.
What this does make cryptocurrencies is a highly lucrative asset class. Point number 3 - Store of value - Cha-ching! 🤑
It's speculative. It's backed by technologies that no one understands but everyone raves about. It's the power in the hands of everyone yet no one at the same time. It's the future.
With all these and many more factors attracting people towards cryptocurrencies, it has attained the coveted VIRAL stamp across the globe, right behind COVID-19.
People investing left, right and centre; Tech-bros tweeting, celebrities tweeting; Prices soaring, prices crashing — investing in crypto has become a real-life multiplayer game. You can easily understand the FOMO one might feel if left out of the game.
Remember how we felt when Pokemon Go launched in India *one year* after the global launch? That hurt. Missing out on the crypto boom might hurt even more.
On a serious note - cryptocurrencies as an asset class have generated mind-boggling returns over the last decade, the return multiples ranging from tens to hundreds to even !thousands! That is an opportunity that once missed can't come back. Especially in a developing economy like India where development is fast-paced alongside inflation, such ROIs could transform people's lives and build generational wealth like never before.
Now, while all of this may seem like straight-up praise for cryptocurrencies, we can't deny from the facts that as an asset class cryptos are the most volatile of the bunch. While the returns break the conventional atmosphere of equities and sky-rocket into space, the downside risk is an equally deep plunge into the depth of the oceans.
Anything could happen and there's no capital protection guaranteed. It is a strategic game that must be played with knowledge, calculation and caution.
BUSTED 👻 - Downside risks of cryptocurrencies are very real and very unpredictable. BTC which was at an all-time high of $63k in mid-April has corrected 44% down to $35k as of the end of May. Such volatility is not for the faint of heart, folks.
However, that still does not make it an adverse phenomenon calling out to be banned.
🏛 Regulation is the way forward
Apart from protecting investors' capital, another thing that the regulators are worried about when it comes to dealing with cryptocurrencies is an illegal activity.
Given the anonymous nature of crypto transactions, it can be argued that cryptocurrencies might be an open gateway for financing illegal activities to take place.
A counter-argument to that could be that don't such activities already take place in the existing systems? Bad actors will find some way to break the rules one way or the other. Also, hey, who knows banning might actually cause more illegal activity cuz FOMO >> Regulations
Bringing in firmer regulations around KYC, AML/ CFT of cryptocurrency transactions is a much more practical solution. It has been implemented by multiple countries globally and proves to be a valid preventive measure to the perceived threats.
Regulations in general around cryptocurrencies are something that should be encouraged. This would serve a two-fold purpose of giving control in the hands of the regulators and also give investors the confidence to invest in cryptocurrencies. Apart from that, public awareness and education on the subject will act as positive tailwinds in the entire regulatory process.
India has one of the most efficient financial regulators when it comes to the stability of the financial markets and economy. By accepting the curious case of cryptocurrencies with well-planned regulations and open awareness, the country could become an example of progressive adoption of the future of finance.
That’s all the gyaan we could pass on for this month, so share it with your friends to spread some awareness. We promise it’s important before you put in your money. Also, a click on subscribe might give you more information than tweets. 🙂