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The rising interest in cryptocurrencies has left Indian officials scrambling to determine how to regulate the industry. Photo: Reuters

In gold-crazy India, millennials are turning to cryptocurrency amid Covid-19

  • Digital currencies such as bitcoin are becoming red-hot investments amid economic uncertainty during the pandemic
  • This comes as the government is softening its tone after years of hostility against the sector, but many financial organisations are still not on board
Dinesh Reddy organised his daughter’s wedding with fanfare in May but he was forced to downsize the gathering due to Covid-19 lockdown measures in the southern Indian city of Bangalore. What he saved from the reduced splurge, the newlyweds received in the form of bitcoin.

Likewise, Shanky Singla, a 33-year-old businessman in Punjab, resumed investing his savings in cryptocurrency this year after a long gap.

“The value of money decreases with each passing day,” said Singla, who had been mulling between bitcoin and gold before he made his decision. “And the growth with which bitcoin has increased is exponential.”

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The stories of Reddy and Singla are part of a growing trend in India, where even members of the working class are looking to park their money in digital currencies such as bitcoin, dogecoin, and ethereum amid economic uncertainty during the pandemic.

According to the US blockchain data analytics firm Chainalysis, Indian investments into cryptocurrency rose from US$923 million in April 2020 to US$6.6 billion in May 2021 – a massive 615 per cent jump.

The crypto rush is leading young investors like Singla to veer away from traditional investment destinations like real estate or gold. The lengthy closure of jewellery stores during lockdowns likely also encouraged people in gold-crazy India to study alternative options.


Amid restricted people’s mobility and crippled logistics, the gold demand plunged into record levels in 2020 due to high prices, postponed weddings, and cancelled festive buying.

Despite being the world’s largest importer of yellow metal, India’s gold imports slumped to the lowest in over a decade last year. But, the gold consumption is gradually resuming this year.

Tabassum M Adur, a 25-year-old founder of a PR firm in Karnataka, thought there was more financial freedom and privacy for her in investing in crypto. “The entire process of investing, transacting and dealing in cryptocurrencies is much more seamless and smoother compared to other options available,” she said.


Gold loses its shine in India as Covid-19 pandemic keeps sales down and shops closed

Gold loses its shine in India as Covid-19 pandemic keeps sales down and shops closed

According to Hitesh Malviya, a blockchain and cryptocurrency investment expert, two groups were behind the cryptocurrency upswing – those who had lost their jobs during the pandemic and were seeking alternative sources of income, and professionals who had more time to study various investment options.

“The size of the first set of audience is larger than the second set, but the second set of investors drove major volumes, and they are more informed and understand risks involved,” Malviya said.


Industry estimates suggest there could be more than 15 million cryptocurrency investors in the country, but exact figures are difficult to come by.

With the lockdown, more people had time to learn about this new asset class and the underlying technology
Avinash Shekhar, ZebPay

Avinash Shekhar, co-CEO of ZebPay, one of India’s first cryptocurrency exchanges, said: “With the lockdown, more people had time to learn about this new asset class and the underlying technology.”


He added that a small portion of investment volume came from short-term investors, with most investors preferring a long-term strategy.

Kim Grauer, director of research for Chainalysis, said there was a significant jump in cryptocurrency purchases in February this year, just before India slipped into a second wave of Covid-19 infections.

“We saw the largest spike in investments happen in February this year, when activity nearly tripled over the course of a single month. We are currently investigating why this could be,” Grauer told This Week in Asia.

The value of bitcoin touched US$50,000 for the first time in February, and hit US$60,000 in March.

Meanwhile, the rising interest in cryptocurrencies has left officials scrambling to determine how to regulate the industry, which it has long been hostile towards.

In 2018, the Reserve Bank of India (RBI) placed a blanket ban on all forms of trading in cryptocurrency, a move overturned by the Supreme Court last year.

The RBI maintains an antagonistic stance towards cryptocurrencies today, even as it develops its own digital currency.

Crypto exchanges and industry stakeholders have been lobbying the finance ministry to come up with a road map to regulate the crypto trade.

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In March, Finance Minister Nirmala Sitharaman said the government would take a careful approach on cryptocurrency trading and ruled out a complete ban, in a strong departure from the state’s earlier disapproving approach.

“We are very clear that we are not shutting off all options,” she told reporters, adding that the government would soon release its plans around fintech and cryptocurrency trading.

India’s fintech sector is among the fastest growing in the world, with six start-ups achieving unicorn status.

Speculation from local media reports suggests that the central government could classify the cryptocurrencies as an asset class.

“We believe the government will come up with more calibrated regulations for the cryptocurrency industry. That includes promoting this technology, supporting the businesses, protecting the investor funds, and much more,” said Shekhar of ZebPay.


What are cryptocurrencies?

What are cryptocurrencies?

But in the meantime, top banks and payment gateways have continued cracking down on crypto trading citing the RBI’s 2018 order, despite the central bank clarifying in June that it is no longer in force.

This issue remains a major problem for cryptocurrency exchanges and the industry.

Malviya, the analyst, said as long as the government could introduce better clarity around the rules, the industry was likely to soar.

“With clear regulation, institutional adoption will thrive in India. We can also see fintech unicorns like Paytm offering cryptocurrency investment services to their users in the near future.

“India has the potential to capture at least 20 per cent of global cryptocurrency investing and trading shares in the near future,” he predicted. “Unclear regulation is the only roadblock we have right now.”