India on the crypto world map

Two major Asian cryptocurrency markets – the Persian Gulf and India – seem destined to interact. The combination of Gulf countries’ capitals and a large number of crypto owners and promising crypto-related IT startups in India could prove incredibly profitable.

India is a huge region in the middle of a venture capital investment boom. The total for just the third quarter of this year amounted to $ 42.7 billion, outpacing even China. The growth of investor interest in Indian companies is remarkable. The Indian branches of the world’s leading venture capital firms such as Sequoia Capital, SoftBank Vision Fund UK, and Tiger Global are leading the way in the Southeast Asian markets, with a lot of investment coming from the Gulf countries.

The Indian cryptocurrency market is quite unusual. On the one hand, the second most populated country in the world has many cryptocurrency owners and crypto businesses. On the other hand, the state’s attitude to crypto is pretty ambiguous.

For example, in the spring of this year, the Indian parliament tried once again to completely ban the use of cryptocurrencies in the country. For Indian citizens, the ban would have extended not only to internal circulation but also to trading on foreign cryptocurrency platforms. Digital asset owners would be given a deadline for getting rid of their cryptocurrencies.

The reason for prohibiting cryptocurrency use was said to be the fact that “such assets are not supported by the Central Bank of India”. The bill established criminal liability for owning, issuing, receiving, trading, or transferring digital money. Had it passed, India could have become the first major economy to outlaw cryptocurrency circulation (this dubious “mantle” was later taken up by China).

However, the bill never materialized. At the end of October, it became known that, instead of a complete ban, India was planning to create a comprehensive legal framework “to regulate and manage the growing cryptocurrency investment market”. It would see digital assets handled as a full-fledged asset class and taxed appropriately. The new bill is expected to be introduced on February 1, 2022.

India does not currently regulate the crypto sector directly. If the law passes, cryptocurrencies will be classified as an asset type and overseen by the Securities and Exchange Board of India (SEBI). Back in September, the chair of the country’s Parliamentary Standing Committee on Finance explained that their crypto legislation will be “different and unique”.
In the meantime, Indian cryptocurrency trading and related services, along with such sectors as DeFi and GameFi, are developing at a rapid pace. In early October, the regional cryptocurrency exchange CoinSwitch Kuber raised $ 260 million in funding. Its valuation has quadrupled in six months and, after the latest financing round, stands at $ 1.9 billion. The round involved new investors like Coinbase Ventures and Andreessen Horowitz, as well as Paradigm, Ribbit Capital, Sequoia Capital India, and Tiger Global. It indicates that CoinSwitch is becoming the second cryptocurrency “unicorn” in India after the CoinDCX crypto exchange.

Overall, from the beginning of the year to August, the cryptocurrency investment in India soared by 19,900% – from $ 200 million to almost $ 40 billion. The local investors seem to be crazy about crypto and show increased confidence in it. Approximately 15 million Indians are estimated to have put money in cryptocurrency.

In many ways, the spiking popularity of crypto in the country was facilitated by the Persian Gulf states. A lot of Indian citizens work in the Gulf region (about 8 million people, of which 3 million are in the UAE), and cryptocurrencies are an excellent tool for them to cheaply transfer money home to their families.

All this makes India a very attractive region for crypto business. It is no coincidence that such large cryptocurrency exchanges as Kraken, Bitfinex, and KuCoin are looking to enter the Indian market in the nearest future and considering their options, ranging from creating subsidiaries to purchasing Indian companies. Binance, to their credit, entered the market all the way back in 2019 through the acquisition of the WazirX cryptocurrency trading platform.
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Meanwhile, Bahrain and Abu Dhabi aim to become the crypto center of the Gulf region. They have developed a regulatory framework, licensed cryptocurrency exchanges and brokerage companies, and invested in crypto-related startups.

While expensive financial hubs in New York and London try to bind cryptocurrencies by traditional rules for financial services, cheaper and less regulated jurisdictions provide insufficient investor protection. Bahrain and Abu Dhabi are trying to chart an alternative path that combines robust regulatory security with attractive investment incentives. Experts estimate the cost of setting up a crypto company in Bahrain to be $ 200,000, as opposed to $ 750,000 in London.

Such conditions open up quite alluring prospects for the Indian crypto business. “Large crypto transfers of over $ 10M account for 42% of transactions from addresses in India, compared to 28% for Pakistan and 29% for Vietnam, – says the recent Chainalysis report. – These numbers suggest that cryptocurrency investors in India are integrated with larger and more complex organizations.”

Investors today are increasingly drawn to the so-called “MENASA” region, which includes the Middle East, North Africa, and South Asia (India and Sri Lanka). They see the Persian Gulf and India as existing within the same business space. The foreign policy of Indian Prime Minister Narendra Modi over the past six years has been primarily aimed at raising the status of the Persian Gulf in his government’s strategic priorities. In turn, Abu Dhabi pledged to invest $ 75 billion in India after Modi visited the UAE in 2015.

Obviously, a significant part of this money will go to IT startups, including – inevitably – those working with blockchain. In fact, the process is already underway: by the end of 2020, such Gulf investors as ADQ, Alpha Wave Incubation, Vy Capital, Investcorp, and Qatar Investment Authority were part of several rounds of startup financing in India. In 2021, this process continued, and we are likely to see the results by the end of the year.