The Reserve Bank of India (RBI) in April 2018 released a circular prohibiting any banks from offering their service to crypto exchanges and any other crypto service providers. The banking ban had quite a devastating impact on the budding crypto ecosystem in the country. Several operational exchanges either shut their operations completely or had to shift their operations to countries where there were better and clear crypto regulations. The circular definitely ran havoc on the Indian crypto community and the flawed reporting combined with misconception and fear of legal battles had even more devastating impact.
The RBI's banking ban was challenged by the Internet and Mobile Association of India which also comprises of members from different crypto exchanges in the Supreme Court stating that the banking ban imposed by RBI was unconstitutional and does not fall under their jurisdiction. While the case may come in anyone's favour, but the RBI's circular has already put India at least a couple of years behind countries who are actively studying and regulating crypto in a way that it neither pose a threat to their financial sovereignty nor it makes
The supreme court also tasked the finance ministry to draft a bill around crypto regulations who recommended a blanket ban. A research study suggested that India would lose an initial market of $12.9 billion if they proceed with the blanket ban. Another report highlighted that India would also lose thousands of direct jobs as a result of the blanket ban.
India has been the IT outsourcing capital of the world despite failing to ride on the dot com boom in early 2ooos which is a glaring example of country's potential in being world leaders in the technology field. India also saw its first crypto exchange come up as early as 2013 in the form of UnoCoin and BTCXIndia. In subsequent years, especially after the 2017 boom, India saw the launch of 15 new crypto exchanges and several other startups.
Right, when the Indian crypto community was gaining momentum the RBI circular ruined the ecosystem completely. While the government's concern over the use of digital assets for illicit activities is understandable, however, RBI's response in the form of cutting the only source of liquidation for these services was cruel.
The trading volume on Indian exchanges prior to the RBI circular indicates Indian crypto ecosystem was thriving prior to the banking ban.
Many established exchanges which had started to register considerable trading volume had to abruptly shut their operations or relocate. Zebpay was one considerable name which was registering the highest volumes among Indian exchanges after the 2017 boom and right after that, it was forced to relocate.
The CEO of the firm Changpeng Zhao or CZ as he is affectionately known told CryptoKnowmics that India has the potential to provide one of the biggest startup ecosystems to the decentralized space and become the fintech hub of the world. CZ said,
"The Indian startup ecosystem can become one of the biggest beneficiaries of progressive legislation pertaining to public blockchains and digital assets. Governments all over the world are quickly looking to bring positive cryptocurrency regulations, India aided by its young blockchain workforce can take a giant leap to become the next blockchain and fintech hub. Pro public-blockchain policies can become one of the key drivers in stimulating positive growth in the Indian economy and perhaps help build more Indian unicorns."
Many Indian Crypto-Exchanges tasted success in its early days and gained traction in 2017, but went bust due to the RBI's circular. We will look into some of the most prominent exchanges which had to either relocate or shut an established business.
One of the most notable Indian exchanges which was founded in 2014 and launched in 2015 and raised $1.1 million in two seed funding rounds. It was among the highest trading volume generators among Indian exchanges before it decided to shift its operations to Malta. The platform also boasts of over 3 million users worldwide. A recent email from the firm to its Indian customers suggested that the exchange is going to make a comeback in the coming months.
ZebPay is estimated to generate around $68.9 million in annual revenue and a majority of its traffic still comes from India. ZebPay is a shining example of how the haphazard decision by RBI led to not only hinder the progress of the fintech industry growing at a lightning speed but also cost the government a tax revenue stream if they had focused on regulating crypto positively.
Koinex, a Maharastra based crypto exchange which was founded in 2017 announced its closure due to the banking ban in June 2019. Koinex has managed to gain popularity in a very short period of time and was attracting a lot of Indian crypto traders on the platform. The exchange was generating an estimated $1 million in annual revenue before it decided to shut down.
UnoCoin was established back in 2013 and is among the very first crypto trading platforms in India. The crypto exchange primarily offered Bitcoin through its platform and later added other crypto pairs to its trading list and even right before the unfortunate banking ban, the platform was registering almost 100 BTC worth of daily trading volume.
The platform is not officially shut, however following the RBI notice it stopped deposit and withdrawals from the platform and is currently waiting for the verdict of the supreme court in the ongoing lawsuit filed against the RBI. CryptoKnomics got in touch with Sathvik Vishwanath, the co-founder and CEO of the firm to get his views on the impact of RBI's circular. Vishwanath told,
"RBI is not a private business to take such unilateral decisions. It was to construct a panel with industry leaders, experts and policymakers to study the policies abroad and their similar applicability in our country before coming up with such knee jerk reaction."
Vishwanath also expressed his optimism on the ongoing court proceedings and belive the set of arguments presented by the IAMAI council is quite applaudable and has gotten his hopes high that they had high chances of winning the case. Talking about the rise of cryptocurrencies, Vishwanath concluded,
“Cryptocurrencies are one of the disruptive inventions in the last decade. The regulations should stop looking at it way too close to identify the misuses and start looking at the bigger picture. There is so much for us to learn from other developed countries when it comes to the crypto industry.”
UnoCoin had an estimated annual revenue of $2.5 million and raised around $ 2 million in seed funding rounds.
BTCXIndia was also among the earliest Bitcoin exchanges in India which was founded in 2013 and was also considered among the most precautionary ones as it implemented KYC and AML regulations even when there was no necessity for such compliance. The exchange also offered instant INR deposit and withdrawals before the RBI circular came in. The exchange had shut its operation back in 2018. Cryptoknowmics reached out to BTCXIndia for comments, but the founders refused to give their input as they haven't been following the ongoing Supreme Court hearing and have shifted their focus to other sectors.
BuyUcoin is among the first proper cryptocurrency exchanges in the country which offered digital Asset Exchange and Blockchain Wallet service and catered its services to more than 200,000 users at its peak. The platform also boasted of handling more than $30m in transactions with digital currencies like Bitcoin, Ethereum, Ripple, NEO, Bitcoin Cash, Dash.
The firm had estimated yearly revenue of $1.4 million at its peak and although it's active today, the platform has lost the shine of its early days.
These are just a few crypto exchanges and service providers which were generating millions in direct revenue at their peaks before the RBI ban kicked in and forced them to either shut their business or try to survive without the banking facilities. These exchanges and their numbers clearly indicate that India could have been a major force in the fintech industry by now if the central bank had taken the right approach.
WazirX was founded back in 2017 when the Bitcoin craze was at its peak, however, the exchange soon became the voice of the Indian crypto community with its #Indiawantscrypto campaign which drew attention from all around the globe. Apart from running social media and public awareness campaign around cryptocurrencies, WazirX worked equally hard to ensure that it continues to help the Indian crypto community trade digital assets with ease and convenience.
CryptoKnowmics got in touch with Nischal Shetty, the founder of WazirX to understand their approach in the aftermath of RBI's banking ban and how did they manage to survive when established players like Zebpay had to shift their base. Shetty explained that the WazirX team was quite determined to help the Indian crypto community survive the RBI's banking ban setback and built the first auto-matching peer-to-peer engine. He explained,
"This helped us ensure that despite the banking restriction, people in India could still continue to cash in or cash out of Crypto easily and at the cheapest rates. WazirX P2P also happens to be the fastest way to buy or sell crypto with transactions happening under 5 mins for maximum users."
Shetty also credited their work ethics and transparency as one of the critical reasons that made them one of the most trusted crypto brand in the country. He noted further,
"we also ensured that we stay transparent and communicate effectively with our users. This helped us become the most trusted brand in India. We also started the #IndiaWantsCrypto campaign which has since gained a lot of support from all over the country. WazirX P2P quickly became the default P2P option for everyone in India and it has the highest liquidity which is the most important factor for anyone before choosing a P2P platform."
The stance of the central government towards digital assets looked quite passive in the past 2 years, however, the ongoing supreme court case has given a lot of confidence to the Indian crypto community. The RBI vs Crypto case is one the verge of conclusion as both the counsels, RBI and IAMAI have concluded their argument in the hearing and judgement might arrive in the next 2-3 weeks.
The Indian National Institute for Smart Government (NISG) has published a draft “National Strategy on Blockchain,” which unlike the draft bill has recommended regulations as the way to move forward. The report makes note of blockchain technologies, smart contract applications, challenges to blockchain adoption, the societal impact of the technology, the role of government, and national strategy principles. The report noted that the government authorities lacked clarity and awareness about blockchain technology.
The report also strongly recommended, that
"Government of India along with RBI come out with a Central Bank Digital INR (CBDR) administered over a public permissioned blockchain that processes transactions through a Turing complete virtual machine allowing decentralised applications to run on its platform."
Given the international attention that the Indian crypto community has garnered and steady change instance of the government bodies, the Indian crypto community has their hopes pinned on the outcome of the case. Many of the mentioned exchanges have been keeping a close eye on the recent developments in the supreme court case, and given how ZebPay is planning a return, other exchanges might follow the same suit.