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Cryptocurrency Investment In India

Cryptocurrency Market

ICT | Apr, 2024

Cryptocurrency, a digital currency secured by cryptographic techniques, has been a subject of both fascination and controversy worldwide. Specifically, in India, its future hangs in the balance, shrouded in uncertainty amidst evolving regulatory landscapes and growing investor interest. The burgeoning cryptocurrency market in India has seen a remarkable increase in size and appeal, attracting investors and letting them be keen on engaging in financial activities such as buying, selling, and trading. According to the United Nations Conference on Trade and Development Report 2021, approximately 7.3% of Indians owned cryptocurrencies in the same year. This statistic underscores the burgeoning adoption of digital assets within the Indian populace, reflecting a global trend towards embracing decentralized finance.

However, amidst the enthusiasm lies a palpable concern – the absence of a legal framework to govern the market for crypto assets in India. Despite the growing traction, the lack of regulatory clarity poses significant challenges. The absence of oversight opens the door to potential risks such as fraud, market manipulation, and security breaches. Investors are left navigating murky waters, unsure of their legal rights and protections. The Indian government's stance on cryptocurrencies has been a subject of speculation and debate. While the Reserve Bank of India (RBI) had previously imposed restrictions on banks dealing with cryptocurrencies, the Supreme Court overturned this decision in 2020, reinstating access to cryptocurrency trading platforms. However, concrete regulations governing the cryptocurrency market have yet to materialize.

As India embraces digitalization across various sectors, the need for a robust regulatory framework for cryptocurrencies becomes increasingly apparent. Without clear guidelines, the burgeoning crypto market risks instability and vulnerability to illicit activities. Moreover, the lack of regulation stifles innovation and investor confidence, hindering the potential economic benefits that cryptocurrencies can offer. Addressing the regulatory vacuum surrounding cryptocurrencies requires a multi-faceted approach.

According to TechSci Research Report “India Cryptocurrency Market By Type (Hardware & Software), By Process (Mining & Transaction), By Offering (Bitcoin, Etgereum, Bitcoin Cash, Ripple, Dashcoin, Litecoin, Others), By End User (Banking, Real Estate, Stock Market & Virtual Currency), By Region, By Competition Forecast & Opportunities, 2019-2029F” India Cryptocurrency Market was valued at USD 221.5 million in 2023 and is anticipated to project robust growth in the forecast period with a CAGR of 6.75% through 2029. The India cryptocurrency market has witnessed significant growth and evolving dynamics in recent years. Cryptocurrencies, digital or virtual assets designed to work as a medium of exchange, have gained prominence among investors, traders, and the general public in India.  The India cryptocurrency market has experienced remarkable growth in terms of adoption and trading volumes.

In this blog, we will discuss how the cryptocurrency market in India is like and how investment opportunities are taking a turn.

Regulatory Environment For Cryptocurrency: In INDIA

In 2021, the much-anticipated Cryptocurrency Bill was expected to be introduced during the Winter Session of Parliament in India, but it faced delays. Recently, during the current Lok Sabha session, the Ministry of Finance faced inquiries regarding the status of the bill. Questions were raised about when the bill would be presented and open for feedback, as well as which ministry or department would oversee the regulation of virtual assets like cryptocurrencies, NFTs, and decentralized applications. Minister of State Finance, Shri Pankaj Chaudhary, representing the Ministry of Finance, addressed these queries. He emphasized the borderless nature of crypto assets, stressing the need for international collaboration to prevent regulatory arbitrage. He stated that effective legislation would require significant international cooperation to assess risks, benefits, and establish common standards. Additionally, he clarified that the policy ecosystem and regulation of crypto assets fall under the purview of the Ministry of Finance.

This delay marks the second time the Cryptocurrency Bill has been postponed, with its initial listing during the Budget Session of Parliament in 2021. Despite these delays, the government's intention to introduce new regulations underscores the importance of establishing a framework to govern the rapidly evolving cryptocurrency landscape in India.

Regulating Cryptocurrency: India’s Stance

Cryptocurrency activities like trading, mining, holding, and transferring have long been deemed illegal in India, with potential fines or imprisonment of up to 10 years, as per a statement by the Reserve Bank of India (RBI) in 2019. Moreover, the RBI hinted at the possibility of introducing the digital rupee as an officially recognized currency in India. However, a significant shift occurred in 2020 when the Indian Supreme Court overturned the RBI's ban on cryptocurrency, opening doors for its usage and trade.

Fast forward to the Union Budget for 2022–2023, where the Government of India made a clear stance on cryptocurrency taxation. Any transactions involving virtual currencies or crypto assets would now attract a 30% tax deduction. Furthermore, virtual goods and cryptocurrencies received as gifts will be subject to taxation in the hands of the recipient. These developments indicate a growing awareness and regulatory framework around cryptocurrencies in India, suggesting a move towards embracing and regulating digital assets in the country.

Recently, latest findings from the survey done by Mudrex Crypto Investment Survey revealed that Delhi NCR (25% of crypto investors) emerged as the frontrunner in the forefront of adoption of cryptocurrencies in India. The list was followed by Bengaluru (16%), Mumbai (9%), Hyderabad (8.9%).

Key Developments in Addressing the Regulations of Cryptocurrencies:

In 2022, India made significant strides towards regulating cryptocurrencies. Let's explore the key highlights:

Non-Legal Tender Status:

India does not recognize virtual currencies like Bitcoin as legal tender. The Reserve Bank of India (RBI) clarified that cryptocurrencies lack official support and are not governed by any governmental authority. This stance caused disruption in the crypto industry when, in 2018, the RBI prohibited banks from offering services to individuals or businesses involved in cryptocurrencies.

Supreme Court Verdict (2020):

The Supreme Court of India ruled the RBI's circular as disproportionate and unconstitutional in 2020, paving the way for the resumption of cryptocurrency trading and investments.

Proposal for Cryptocurrency Regulation Bill (2021):

In 2021, the Indian government introduced the Cryptocurrency Regulation Bill, with the aim to outlaw private cryptocurrencies while establishing a framework for a central bank digital currency (CBDC). However, the bill is still in deliberation stages.

Income Tax and TDS Regulations (2022):

The Union Budget 2022-23 introduced a 30% income tax on cryptocurrency profits. Furthermore, regulations were put in place for a 1% tax deducted at source (TDS) on cryptocurrency transactions.

Inclusion in Anti-Money Laundering Act (2023):

India brought cryptocurrencies under the Anti-Money Laundering Act's scope. This decision holds crypto exchanges, NFT marketplaces, and wallet providers responsible for monitoring and reporting any suspicious financial activities.

Popular Cryptocurrencies To Invest in India: Their Investment Scenarios

  1. Ethereum:

In the vibrant world of cryptocurrency investing in India, Ethereum (ETH) stands tall as a prime contender alongside Bitcoin (BTC) (discussed in next point). While the potential for lucrative gains in the ETH market is undeniable, it's essential for investors to navigate the tax implications and evaluate the reliability, transparency, and security of this blockchain darling. When it comes to reaping profits from Ethereum investments in India, tax considerations loom large. Similar to BTC, investors may face a 30% tax on short-term gains and a 20% tax on long-term gains. Over the course of a single year, its value surged by an astonishing 800%, catapulting its total worth to an impressive $300 billion. Such exponential growth underscores Ethereum's allure as a formidable investment option in the ever-evolving landscape of digital assets.

  1. Bitcoin (BTC):

Bitcoin has emerged as a start player captivating the attention of discerning investors seeking to capitalize on its meteoric rise and potential for lucrative returns. The surge in Bitcoin's value has been nothing short of extraordinary. Casting our minds back to May 2016, one could acquire a single Bitcoin for a modest sum of approximately $500. Fast forward to October 31, 2023, and the price had skyrocketed to a staggering $34,338 per Bitcoin. As of April 22, 2024, current Bitcoin price amounts to $66,237 USD (55,22,026 INR). This monumental surge represents an astronomical growth showcasing the unparalleled potential of Bitcoin as an investment vehicle in the Indian market.

However, it's crucial to recognize that income derived from Bitcoin investments in India, whether through trading or mining activities, is liable to taxation. Ensuring compliance with tax regulations is imperative, necessitating accurate reporting of income to the relevant authorities. For short-term gains, a tax rate of 30% applies, while long-term gains are subject to a 20% tax obligation.

  1. TRON (TRX)

TRON (TRX) emerges as a decentralized blockchain platform boasting its native digital currency, Tronix, affectionately known as TRX. This innovative platform empowers users to harness the power of smart contracts and dive into the realm of Decentralized Finance (DeFi), facilitating the seamless creation and management of decentralized exchange apps, alongside enabling transactions for various applications including social networks and gaming platforms.

Much like its counterpart Solana (SOL) (discussed next), TRX operates on a proof-of-stake consensus algorithm, providing a robust framework for secure and efficient transactions. Charting its journey through the annals of cryptocurrency history, TRX emerged onto the scene in 2017 with a humble valuation of $0.0019 per token. However, its elevation culminated in 2018, with TRX reaching an impressive pinnacle of $0.2245 per token, showcasing an astronomical surge of 11,715% within a mere span of months. Presently, TRX commands a valuation of approximately $0.10, underscoring its enduring appeal and potential for growth in the volatile landscape of digital assets.

  1. Solana (SOL)

Solana uses a clever mix of methods to make sure it can handle lots of transactions without slowing down or compromising security. While big players like Bitcoin and Ethereum can take minutes or even hours to process transactions, Solana does it in the blink of an eye. Its block times, which is basically how long it takes to confirm a transaction, are usually around 0.4 seconds. Back in 2020, when Solana first hit the scene, its price was just $0.77. But fast forward to late November 2023, and it soared to around $41.87 per token. That's an incredible increase of 5,337% in just a few years. Currently, as of April 22, 2024, SOL’s live market cap is $154.29 USD (12,860.97 INR).

While Solana's technology and lightning-fast transactions make it a promising investment, there's always a risk involved. If you're thinking of investing in SOL, it's a good idea to do your research and consider it as part of a diversified investment strategy.

  1. Avalanche (AVAX)

Avalanche (AVAX) is known for being super speedy and ultra-secure, thanks to its fancy tech setup that includes layers of security and fancy math stuff called cryptographic algorithms. There are about 720 million AVAX tokens floating around, and here's the cool part – the folks who use AVAX get to have a say in how fast new tokens are made. Imagine a digital democracy where AVAX holders can vote on things like how many new coins get created whenever a new block is added to the Avalanche blockchain. However, the same question is still asked about this cryptocurrency as well.

AVAX definitely has its perks. In the past year alone, its value skyrocketed by a jaw-dropping 8,000%, making it one of the hottest cryptocurrencies out there. As of now, AVAX's total value sits pretty at over $20 billion, which is nothing to sneeze at. But here's the thing: Cryptocurrency prices can be as unpredictable as the weather. They can shoot up to the moon one day and crash back down to earth the next. So, before you dive headfirst into investing in AVAX or any other cryptocurrency, it's crucial to weigh the potential risks and rewards.

Now that you know of some names to invest in if you are an Indian resident, you should also be aware of the factors to consider before investing in Cryptocurrency:

  • Investment Purpose:

If you are looking for a short-term investment, cryptocurrencies should not be your go-to choice. Because of it being a more volatile asset class, long-term investment strategies are always encouraged for cryptos.

  • Diversification:

Avoid putting all your eggs in one basket by diversifying your cryptocurrency investments. Spread your investment across multiple cryptocurrencies to mitigate risk and capitalize on potential opportunities.

  • Tax Implications:

Be aware of the tax implications of cryptocurrency investments in India. Income generated from trading, mining, or capital gains from cryptocurrency investments may be subject to taxation under Indian tax laws. Therefore, it is also suggested in good practice to consult with a tax advisor to ensure compliance with tax regulations.

  • Market Sentiments

It is important to understand the sentiments of Indian investors and any local factors that may influence cryptocurrency prices and market dynamics. Factors such as government policies, economic indicators, and cultural attitudes towards investing may impact market sentiment.

  • Cryptocurrency Projects with Indian Connections

Consider cryptocurrency projects with ties to India or those addressing specific challenges in the Indian market. Projects focusing on areas like remittances, financial inclusion, or supply chain management tailored to Indian needs may present unique investment opportunities.

  • Cryptocurrency Exchanges

Choose reputable cryptocurrency exchanges that comply with Indian regulations and offer secure trading platforms. Look for exchanges with robust security measures, transparent fee structures, and a wide range of cryptocurrency offerings.

Crypto Investments in India: 7 Crucial Steps

Step 1:

Understanding and Allocating the Investment

Before you decide to invest your money, it's important to understand what you're getting into. Cryptocurrency, like Bitcoin and others, is one option, but it's a bit tricky. It can go up and down in value very quickly, so experts say it's best to only put a small part of your savings into it, like 5-10%. Investing in cryptocurrency is a bit like buying stocks, but not exactly the same. Cryptocurrencies are digital money that people use to buy things online, but they can also be very risky. Some cryptocurrencies have even disappeared completely, which means if you invest in them, you might lose all your money. So, if you're thinking about investing in cryptocurrency, remember to be careful and only invest what you can afford to lose. It's a wild ride, but with the right approach, you can navigate it safely.

Step 2:

Choosing The Cryptocurrency

For crypto investors, picking the right digital currency can be tough. We've all heard of big names like Bitcoin, Ethereum, and Dogecoin, but did you know there are over 5,300 different digital tokens out there? It's a lot to wrap your head around. Bitcoin is the most popular and widely traded cryptocurrency, but it's not the only game in town. In fact, some lesser-known cryptocurrencies have actually done better than Bitcoin! So, while Bitcoin might be the first thing that comes to mind when you think of cryptocurrency, it's worth exploring other options too.

Step 3:

Understanding It

Just like anything you might invest in, digital tokens have their own unique qualities. Experts say it's important to look at things like the technology behind them, how easy they are to use, how they're created, the community supporting them, and their true value. These are all key factors to consider before investing in cryptocurrencies. So, before diving in, take the time to understand the basics and do your research. It'll help you make smarter investment decisions in the long run.

Step 4:

Choosing A Buying Platform

You won't find cryptocurrencies like Bitcoin or Ethereum at your regular bank or investment firm. Instead, you have to go to special places called cryptocurrency exchanges to buy them. These exchanges are where people trade digital tokens, but there's usually a fee for buying and selling. You can buy cryptocurrency straight from the exchange, or you might find someone else selling their tokens. Just keep in mind, cryptocurrency trading is anonymous, meaning it's hard to know who you're buying from or selling to. So, be cautious and do your research before making any transactions.

Step 5:

Storing Your Cryptocurrency

Cryptocurrencies are kept safe in crypto wallets. It might sound a little tricky at first, but basically, a crypto wallet is a special software program, not a physical wallet. These wallets store something called private and public keys, which link you to the blockchain where your cryptocurrencies are stored. They don't actually hold your cryptocurrencies themselves, but they help you get to them using these keys. You need both keys to make transactions because they unlock your cryptocurrencies on the blockchain. There are different types of digital wallets, like Desktop, Online, Mobile, and Hardware wallets. You should pick the one that balances security and convenience best for you.

Step 6:

Securing Your Crypto Wallet

Protecting your cryptocurrency is crucial, especially if you're using it for purchases or have a hot wallet. When your crypto is online, security becomes a top priority. Many people opt to use a VPN (Virtual Private Network) for secure and encrypted online transactions. With data encryption, all your online transactions stay private. It's like adding an extra shield to safeguard your data and crypto purchases, keeping them completely anonymous. This extra layer of protection makes it much tougher for hackers to break into your accounts, which is especially important for users with significant cryptocurrency holdings.

The Final Step 7: Note That

Cryptocurrencies are a long-term investment, driven by their underlying technology and the communities supporting them. They have diverse uses beyond what we currently know, so it's important not to see them as a way to get rich quickly. Investors should have a clear investment horizon and regularly take profits. It's essential to understand that the crypto market is still in its early stages compared to traditional investments. New tokens will enter the market, generate excitement, and then fade away. Investors should be cautious of such schemes and ensure they take profits at the right time.

According to TechSci Research Report “Cryptocurrency MarketGlobal Industry Size, Share, Trends, Opportunity, and Forecast, 2018-2028, Segmented By Type (Bitcoin, Ethereum, Tether, Binance Coin, Cardano, Dogecoin, Others (USD Coin, Ripple, HEX, etc.)), By End User (Trading, Retail & e-commerce, Peer-to-Peer Payment, Remittance, Banking), By Region” Global Cryptocurrency market is anticipated to project robust growth in the forecast period. The rising focus towards mining of these currencies through the usage of blockchain technology across the world has directly impacted the global cryptocurrency industry in a positive manner. Moreover, rising issue of inflation and the need to secure respective savings, are factors significantly influencing people towards the investments in cryptocurrency. Cryptocurrencies, or digital or virtual currencies that employ cryptography for security, are traded on the crypto market. Because cryptocurrencies are decentralized, no government or financial institution has any control over them.

Trends Seen In India In Relation to Cryptocurrencies

Firstly, let us start with Crypto’s Spectacular Performance.

  • Bitcoin's value skyrocketed from INR 2,080,001 to INR 6,114,877, smashing its previous records from 2021. This shows how strong and promising Bitcoin can be. Even though it went through tough times in 2022 and 2023, Bitcoin made a big comeback in 2024. It jumped a lot on March 8 and March 14, reaching brand-new highs. This jump indicates that people are feeling more confident about Bitcoin and are getting more interested in investing in it all around the world.
  • Ethereum's steady performance and the positive changes in the cryptocurrency world have added to traders' hopes for higher prices, boosting confidence in the market. According to the most recent data as of March 18, 2024, Bitcoin (BTC) saw a small drop of 4.90%, while Ethereum (ETH) fell by 10.95% over the past week.
  • Solana is still a great choice for investing because it has a strong system and a platform that can handle a lot of transactions. Its price has been between INR 17,383 ($209) at its highest point in the last 24 hours and INR 15,632 ($188) at its lowest. This shows that SOL has the potential to keep growing and bringing new ideas to the cryptocurrency world.

Cryptos Trends Across Factors, namely:

Age Demographics: In a recent study, it was found that more than 80 percent of the participants were from the young adult demographic, aged between 20 and 35. This generational preference underscores a higher openness to innovative financial technologies and alternative investment avenues among younger investors. This trend highlights the growing interest and involvement of millennials and Gen Z in exploring new ways to grow their money beyond traditional methods.

Lower Income Groups: The survey showed that people from all income levels are getting into cryptocurrencies. There wasn't much of a difference between rich, middle-class, and low-income investors. Surprisingly, even those earning less than Rs 5 lakh per year are investing in cryptocurrencies. This shows that cryptocurrencies are becoming more available to everyone, no matter how much money they make.

Males Dominate: Among people who invest in cryptocurrencies, the survey discovered that 69 percent were men, and 29 percent were women, with 2 percent not mentioning their gender. This mix of people joining in can be because some are looking for financial freedom, some are okay with taking financial risks, and others have different levels of knowledge about using digital technology.

Avoid Investments in Crypto As Retirement Corpus

The survey also shows that more people are starting to think about cryptocurrencies as part of their long-term money plans. About 45 percent of users are thinking about cryptocurrencies when they plan for retirement. This shows that more people see cryptocurrencies as a real way to grow their money over a long time. Maybe they think cryptocurrencies can make a lot of money in the future, or they want to spread their money out into different things, not just stocks and bonds.

However, experts share a contrasting opinion. They suggest to not rely on cryptocurrencies for your retirement corpus because of them being very volatile. Before investing, it's advisable to assess your risk profile. It's recommended to have a good understanding of cryptocurrencies before making any investments. It's suggested to limit exposure to cryptocurrencies to no more than 2 percent of your total investment portfolio, particularly if you're not accustomed to the high volatility of crypto assets.

The Bottom Line

The landscape of cryptocurrency in India reflects both promise and uncertainty, mirroring global sentiments surrounding digital currencies. The surge in cryptocurrency ownership, with approximately 7.3% of Indians reported as owning cryptocurrencies in 2021, underscores the growing acceptance and adoption of digital assets within the Indian populace. This trend aligns with a global movement towards embracing decentralized finance, driven by factors such as financial independence pursuits and varying levels of digital literacy among younger demographics. However, alongside this enthusiasm, concerns loom over the absence of a comprehensive regulatory framework governing cryptocurrency markets in India. The lack of regulatory clarity poses significant challenges, leaving investors vulnerable to risks such as fraud and market manipulation. Despite the Indian government's evolving stance on cryptocurrencies, with recent moves towards taxation and regulation, concrete guidelines for the cryptocurrency market have yet to materialize.

In addressing the regulatory vacuum, a multi-faceted approach is imperative. Efforts must be directed towards establishing a robust regulatory framework that promotes stability and safeguards against illicit activities. Collaboration at an international level is essential to assess risks and establish common standards, given the borderless nature of crypto assets. Recent developments, including the postponement of the Cryptocurrency Bill and the introduction of taxation measures, underscore the government's intention to regulate digital assets. However, the delay in enacting comprehensive regulations highlights the complexity of navigating the evolving cryptocurrency landscape.

In light of these developments, investors are advised to exercise caution and conduct thorough research before investing in cryptocurrencies. Assessing risk profiles, understanding the tax implications, and limiting exposure to cryptocurrencies within a diversified investment portfolio are essential considerations. Moreover, while cryptocurrencies present opportunities for wealth accumulation, they should not be relied upon as a sole means of retirement planning due to their inherent volatility. As India grapples with the challenges and opportunities presented by cryptocurrencies, establishing a clear regulatory framework will be paramount in harnessing the potential economic benefits while mitigating associated risks. By fostering a conducive environment for innovation and investor protection, India can position itself as a key player in the global cryptocurrency landscape.