December 8, 2022
BENGALURU, INDIA – Mr Augusteen Sanoobh, 22, wants to sell his cryptocurrency tokens as soon as possible. The cafe manager in Bengaluru began with a dozen a year ago, and is now left with three – Bitcoin, BCH and Ethereum – worth about $24,000.
Mr Sanoobh began trading in crypto last year as one of many ways, including online gaming, to recover the 400,000 rupees (S$6,600) he lost to a foreign job recruitment scam. “I made enough to repay my parents and buy a motorbike,” said the son of small coffee planters.
Wary of the rest of his savings being wiped out overnight like some of his friends, Mr Sanoobh says he wants to exit before he is “deceived again in yet another way”.
India has the world’s fourth-largest adoption of crypto, according to Singapore-based Chainalysis. Vietnam is the largest.
But crypto investors in the South Asian country are losing faith in the digital asset after the collapse of Bahamas-based FTX, one of the world’s biggest crypto exchanges.
Although most Indian crypto exchanges did not have major exposure to FTX, the global market meltdown has dampened crypto enthusiasm in India. After attracting investors with a promise of up to 3,100 per cent growth, many crypto exchanges are now facing panic-selling.
Investors are offloading their assets as prices have been going south since November. Most coins show double-digit losses, and the total crypto market capitalisation has plummeted to US$875 billion (S$1.2 trillion) globally as at Wednesday, a 65 per cent fall since December 2021, according to CoinGecko.
Crypto exchanges AAX, Bitcoke and Blockfi have suspended withdrawals. Many others have imposed caps on daily withdrawals to prevent bankruptcy. But India-focused crypto companies WazirX and ZebPay continue operations.
As FTX founder Sam Bankman-Fried’s US$16 billion wealth was wiped out, and the company is being probed for alleged theft of customers’ funds and fraudulent transactions, Indian investors are demanding that crypto exchanges reveal their reserves and liabilities.
Some companies are responding. Mr Sumit Gupta, co-founder of CoinDCX, one of India’s biggest crypto exchanges, wrote on a blog post that the company will be “more transparent”. It will periodically publish its reserves-to-liability ratio, along with audit certificates.
Only 3 per cent of Indian investors are exposed to crypto trading. But experts say its lure of overnight riches is fertile ground for scams in a country with low financial literacy levels and among the world’s lowest per capita income.
Mr Pranjal Daniel, chief strategist at Strategy India, said that the Indian market is swamped with multilevel marketing frauds pushing crypto tokens on the promise of easy money and commissions for bringing more participants.
“In these (crypto marketing) models, the victims turn into perpetrators or Ponzi zombies,” said Mr Daniel, whose company issues scam alerts.
Overall, experts say the damage to Indian investors has been limited because of institutional hesitation about cryptocurrencies.
Like the Monetary Authority of Singapore, the Reserve Bank of India (RBI), the country’s central bank, has repeatedly warned against cryptocurrencies. In a June report, RBI governor Shaktikanta Das described them as “a clear danger”, saying that anything which derives value on make-believe “is just speculation under a sophisticated name”.
Since April, India has imposed a 30 per cent tax on crypto earnings to temper demand. In addition, since July, a 1 per cent tax is also deducted at source.
Indian exchanges WazirX, CoinDCX, BitBNS and ZebPay reported that their average daily transaction volumes nearly halved after the 30 per cent tax was imposed.
Crypto firms have been asking for regulation, believing it will legitimise trade and weed out bad players. Bharat Web3 Association, a lobbying group established last month by prominent Indian crypto companies including WazirX and CoinSwitchKuber, has offered to assist the government in developing suitable legislation to regulate the market.
Under India’s presidency of the Group of 20 from Dec 1, crypto regulation is among the high-priority issues for discussion between global leaders.
But Finance Minister Nirmala Sitharaman has said that no legislation is possible without significant global consensus on virtual currencies as they are borderless and the risks involved are far too high.