It’s the best of times and the worst of times to be a startup with a foothold in India’s crypto marketplace. While regulatory uncertainty continues to linger, many people—from the likes of Bollywood icons to tech entrepreneurs—have expressed their love for crypto; everyone wants to learn about crypto. Some even believe cryptocurrencies, and the underlying blockchain architecture, will set off a new wave of financial innovation once the level of adoption rises.
The latest to dive headfirst into the space is Jignesh Shah, founder of 63 Moons Technologies. The firm, via its wholly-owned subsidiary Tickerplant Limited, announced the launch of CryptoTV, CryptoWire (blockchain news and analysis providers) and a Crypto University last week. Shah is battling civil and criminal cases related to the National Spot Exchange Limited financial scam. Thus, his entry into the crypto realm, which often draws the ire of regulators and governments, is a bit surprising. But it also explains the momentum that is driving the Indian crypto market at the moment. Everybody wants to be involved with crypto in some form. So, everything from new coin launches to so-called crypto-based fixed deposits and ‘loan against crypto’ products have mushroomed and proliferated over the past year.
Currently, India ranks second in cryptocurrency adoption, behind only Vietnam, according to the 2021 Global Crypto Adoption Index. According to a recent study by Nasscom and the crypto exchange WazirX, the Indian cryptocurrency market has been growing exponentially over the past few years and is expected to touch $241 million by 2030.
Meanwhile, leaks from official sources indicate that the Union government is unwilling to accord legal status to cryptocurrencies. Even if it is acknowledged as an ‘asset’ instead of a ‘currency’, there is a strong possibility that only Securities and Exchange Board of India (Sebi)-registered platforms would be allowed to trade in crypto. Transactions may also need to happen via onshore wallets. Despite these looming conditions, why is the number of business ventures in the segment exploding?
The simple reason: Crypto is raking in the moolah at the moment. “Everyone in the fintech ecosystem has been looking to get into cryptocurrency trading… the kind of money in crypto is crazy,” says the founder of a Sebi-regulated investment advisory firm, requesting anonymity.
So, what exactly is the crypto business? How do exchanges and traders make money legally as well as through means that could be deemed unethical? And will India’s legislative approach help in regulating the ever-evolving crypto universe?
The kosher business
The major source of revenue for a cryptocurrency exchange is commission on each trade (buy and sell). It usually ranges between 0.1%-0.5%, or sometimes, even 1%. The largest global exchange Binance’s trade volume on an average day is roughly $100 billion (0.1% of it, or $100 million, is the net revenue every day from just spot trading).
Since all the Indian crypto exchanges have moved their offices out of the country following the Reserve Bank of India’s (RBI) ban on crypto transactions by banks in 2018, it is difficult to assess their revenues. Last month, WazirX said that it recorded a trading volume of over $38 billion in 2021. Roughly 0.1% of that figure is ₹290 crore (based on Wednesday’s exchange rate). The oldest exchange Zebpay, which moved its base to Singapore in 2018, last reported its revenues from India in the financial year 2018. It was ₹202 crore. The profit stood at Rs77 crore.
The founder of the Sebi-regulated advisory quoted above said that the turnover estimates are conservative because crypto exchanges regularly charge 0.5%-1% as commission.
Another realm in the emerging crypto business ecosystem is occupied by banks that power the regular and trading accounts of the exchanges. “Cashaa charges (the exchanges) a fee of 1.5%,” said Kumar Gaurav, founder of a crypto bank Cashaa. “We are not powering the trading account of Indian exchanges because we are not present locally. But since these Indian exchanges are headquartered outside India, we power their regular accounts where their funding money is kept,” he added.
Vauld, Zebpay and CoinDCX are some of the platforms that also Indian borrowers to avail credit against their crypto holdings. Cashaa is rolling out its own lending against crypto in collaboration with United Multistate Credit Cooperative Society, in which Gaurav owns a 51% stake.
“Unicash is the brand through which we will be offering wallet and lending offerings,” Gaurav said. “If you have bitcoin sitting idle, you can get (a) loan against it at 14-18% (interest). As a cooperative that has a lending licence, we are asking bitcoin to be treated as an asset class […]
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