The cryptocurrency sector has been in a spot since the Reserve Bank of India's (RBI) circular that banned banks and other institutions under it from dealing with the virtual currency players.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

Experts feel this, combined with the central bank cautioning people against the use of cryptocurrencies, has led to a dip in the number of transactions in the cryptocurrency space.

"The overall growth in the sector has reduced because of the circular," says Nischal Shetty, CEO of the WazirX, a bitcoin exchange in India.

Due to the RBI ban, volume and innovation have taken a hit in the sector, which has led to a fall in the growth for the crypto start-ups in the country. One of the first victim of the RBI ban was Zebpay - India's largest cryptocurrency exchange - that shut shop in September.

As of now, no new start-up is venturing into the crypto space due to lack of clarity. "In the last six months, too much uncertainty has come into the field," Shetty said. "Everything is in limbo right now."

The biggest dampener, Shetty believes, is for people who want to enter the space. Since the circular, the number of new people entering has reduced by at least 10-15% for WazirX. For those who are already trading already, life continues as usual.

Amid the confusion, though the banking transactions have reduced, peer-to-peer (P2P) transactions have seen an uptrend. This is keeping the spirit up for such exchanges.

In the P2P transactions, the buyer and seller can communicate directly with each other while the exchange acts as an escrow or a third party account that holds cryptos during the deal.

Shetty claims that it was his company which had introduced the P2P deal model in India first on March 8.

"P2P has seen better growth than banking transactions," says Shetty.

While it is a silver lining, the volume growth could have been 5-10 times more with banking transactions.

What adds to the woes of the sector is the recent Financial Stability and Development Council (FSDC) press release said that the Council has proposed to "devise a regulatory framework to ban private cryptocurrencies in India". On the other hand, it encouraged the use of Distributed Ledger Technology (DLT), like blockchain.

According to Shetty, blockchain and crypto are inter-linked, and that one cannot function without the other. There is a lot of a misinformation on blockchain in open, which is more harmful than no information.

Blockchain means transparency and the first problem it will solve will be of money, says Shubham Yadav, co-founder of Coindelta.

"Imagine yourself knowing that where your tax money is being spent or sending money to your relatives or friends anywhere anytime all at your fingertips just like you send e-mails or your photos. This is the future that Blockchain can bring," he adds.

This uncertainty and worry in the space have also led to 'brain-drain' in the country. "Innovators are going to innovate. If not here, then somewhere else," said Shetty. Now is the right time to stop innovators from leaving the country to work on foreign projects.

Counties such as the US and South Korea are seeing a rise in transaction volumes. While South Korea allows its banks to work with different crypto exchanges, US regulators too have given it a green signal. Even Japan's cryptocurrency platform - the Japan Virtual Currency Exchange Association (JVCEA) – is now allowed to regulate the players within the industry.

However, it is still an uphill battle for the cryptocurrency firms in India. "Positive regulations are needed to cut out scammers. This will also allow more people to join in," Shetty said.

Experts believe that technology innovations largely depend on government support. Lack of regulations plus the bear market in crypto has been demotivating for the sector, feels Rahul Raj, co-founder and CEO of Koinex. "Even a small push from regulator will push up volumes and positive sentiment," says Raj.

LOSING CURRENCY

  • Volume, innovation have taken a hit in the sector; there is a fall in the growth for crypto start-ups in the country  
  • While banking transactions have reduced, peer-to-peer (P2P) transactions have seen an uptrend  
  • Experts believe that technology innovations largely depend on government support