Bitcoin, a global alternative to cash, has gained currency after demonetisation.
As demonetisation sucked most of the hard cash out of the Indian economy, people were pushed towards the various ‘cashless’ options at hand such as card payments and the Paytm wallet. There has also been brisk activity in an area which has largely been overlooked by the Indians so far. Bitcoin, the crypto currency that had made waves globally some time ago, is the new option for investors in the country who are finding it difficult to invest their money post-demonetisation.
In the last two months, investments by Indians in Bitcoins increased by over 200 per cent, according to market estimates. More and more people are enrolling for buying Bitcoins than ever before. Bitcoin exchange Zebpay had 50,000 users in the month of November.
“Now everyone is talking about Bitcoins because it is an alternative way of investment for people,” says Siva Kameshwar Rao, founder of BTCXIndia, one of the four Bitcoin exchanges in India. “A few years ago, it was considered to be a dark investment, but now that mindset has changed and people are willing to invest in Bitcoins.”
The numbers prove his point. According to market reports, all the Bitcoin exchanges in India have seen their transactions almost double in the last two months following demonetisation. With the value of Bitcoins increasing by the day, the transaction value has also increased for the exchanges. “In the first few days after demonetisation there was a lot of interest and prices went up to Rs 77,000 per Bitcoin. Volumes picked up by 15 per cent immediately,” says Rao.
For the uninitiated, Bitcoin is an online crypto currency which can be bought or sold through designated exchanges only. It is a software-based online payment system which was introduced as an open-source software in 2009.
Bitcoins are managed using cryptography and are a digital payment system. Like the Internet itself, no person, company or country owns Bitcoins or controls them. It is a global digital decentralised currency and payments network.
Simply put, Bitcoin uses a peer-to-peer protocol like email and can be sent to anyone anywhere using an online address without any intermediary. There is almost no transaction cost, which makes it much better option than most traditional online payment systems. The transaction is not controlled by any government or bank and can be used not just for trading but also for making online payments for goods and services.
What is more interesting is the fact that while in many countries there are rules governing and regulating Bitcoins, there is total ambiguity in India with the government yet to come out with a stand on it’s status. The RBI has not declared it legal or illegal. It has only cautioned people against its dangers and volatilities.
Bitcoins can be bought in any country and can easily be converted into Indian Rupee.This increases the chances of making Hawala-type transactions from overseas.
Bitcoins can be obtained in three ways: ‘mining’ or discovering new Bitcoins; buying them on an exchange; and accepting them for goods and services. At present, India has four Bitcoin exchanges—Unocoin, Zebpay, Coinsecure and BTCXIndia. Unocoin is also a merchant gateway, which means merchant establishments can offer services and goods in exchange for Bitcoins, mostly without a transaction charge.
In the months following demonetisation, the prices of Bitcoins have surged to astronomical levels. Two years ago, the price of one Bitcoin was around Rs 15,000. In 2016, this price rose to around Rs 58,000-60,000, and immediately post-demonetisation, the price surged to Rs 73,000. Experts say prices were earlier being pushed up due to the devaluation of the Chinese Yuan and the election of Donald Trump to the US presidency, but the real surge happened post demonetisation in India.
On January 7 this year, the value of Bitcoins peaked at around Rs 80,700 per Bitcoin. It has currently settled down at around Rs 71,000-72,000. Interestingly while the value of a Bitcoin in India went up to Rs 73,000 in November, the international value for it was around Rs 60,000.
This surge in value was due to increased demand among Indians looking for a place to park their money. With the government putting limitations to investments in gold, Bitcoins have become the new gold for Indian investors. “As there are curbs and limitations on the purchase of gold and prices are increasing, people need fresh avenues to put their money in. Bitcoins have given excellent returns so far,” says Alok Jha, MD Cyberplat, a digital payments company. “It has given better returns than fixed deposits, mutual funds and gold. It is like the stock market and more people are getting to know of it.”
The attraction for investing in Bitcoins also stems from the fact that there is no limit to the buying and it is not controlled by any government body. Additionally, Bitcoins can be used to remit money into India as they can be bought in any country and can easily be converted into Indian Rupee. This increases the chances of using Bitcoins for making Hawala-type transactions from overseas. Though, from India it would be difficult as one has to invest only online and through bank accounts with KYC details. However, there is also the risk of volatility of prices of Bitcoins which is different from Hawala transactions and brings in a risk element in these transactions as the price, though rising in the last couple of months, can also fall sharply depending upon the amount of trade happening in Bitcoins in India or globally.
This explains the increased activity at the exchanges in the last two months. “In November, we got twice the number of customers compared to October. In December the same trend continued and the price continued to rise till January,” says Sathvik Vishwanath, CEO, Unocoin. While Bitcoin transaction volume in India has increased by ten times in the past one year, Unocoin’s user base is growing between five and 10 per cent per month and its volume is growing at 10 to 15 per cent per month. While there were 20,000 Unocoin wallet users in India in 2015, the number in December 2016 stood at 100,000.
Unicoin saw 9,000 new registrations in October. The number increased to 17,000 in November and daily volumes increased from 150 Bitcoins in October to over 250 Bitcoins per day in November. “All exchanges have seen a surge because people think that this is a place where you cannot trace the money and one can be anonymous after investing,” says Jha.
Unocoin is also India’s only Bitcoin exchange with a merchant gateway. It means, the exchange can use Bitcoins for buying goods and services. Unicoin claims it has 1,500 merchants registered with them who are accepting payments through Bitcoins. Globally, there are over 200,000 merchants who accept Bitcoins for payment for services. Similarly, Zebpay, the largest Indian Bitcoin player with 65 per cent of the market, is looking at a turnover of Rs 1,000 crore by April this year.
Despite the surge in the last two months, India lags far behind many other countries in using the global crypto currency system. While India’s daily turnover of Bitcoins is around 1,000 Bitcoins in four exchanges, China has a daily volume of 10 lakh Bitcoins.
With the recent surge in usage of Bitcoins, India is gradually becoming a player in influencing Bitcoin pricing. Experts believe that the government needs to take notice and act as Bitcoins can provide a safe haven for transferring money into India. It is time the government woke up and spelt out rules governing and regulating Bitcoins to prevent them from becoming another instrument of parking unaccounted money.