Bitcoin flourishes in India, despite China's cryptocurrency crackdown

The bitcoin is in a tailspin, but that is not stopping a growing number of enthusiasts in India from trading in it
After months of driving past a tiny, Maharashtrian restaurant in the upmarket and hip neighbourhood of Indiranagar in Bengaluru, Shashank (peru (guava) ice cream.

A board behind the counter announces that Suryawanshi, besides customary methods, also accepts payment in bitcoins. When their bill comes, Shashank’s friend asks him to use his bitcoins, but Shashank hesitates. “Why spend the money that in all probability will be of more value in future than it is now?” he says.

His confidence is unshaken by the news that the bitcoin is on a sharp downslide in India after a crackdown by China on cryptocurrencies. What’s more, it is falling faster here than anywhere else in the globe. It hasn’t helped that a Reserve Bank of India (RBI) official also recently trashed the digital currency. RBI Executive Director Sudarshan Sen said that they are “not comfortable” with non-fiat cryptocurrencies. (Fiat currency is government-backed legal tender.)

According to Zebpay, an app-enabled Bitcoin wallet provider, the value of the cryptocurrency in India has plummeted from a little over Rs 3.40 lakh per unit on September 2 to a little over Rs 2 lakh on September 15, with constant fluctuations. But then, only two months ago, a bitcoin was valued at about Rs 1.8 lakh. 

Such erratic upheavals are not new to the bitcoin. Those who resiliently continue to trade in it are aware of this. And, they have past instances to back their tenacity. For example, between December 4, 2013 and December 18, 2013 — within a fortnight — the bitcoin had plunged by 54.5 per cent. And then it had, as suddenly, skyrocketed — shooting up by 82 per cent between December 18, 2013 and January 6, 2014.

One of the strongest criticisms against bitcoins is its volatility. But that’s precisely why this is the time to invest, because the prices may shoot up after 2017, feels Mumbai-based techie Akshay Haldipur. The 30-year-old is one of India’s first bitcoin millionaires. 

Haldipur, vice-president of marketing at Culture Machine, a digital media company, made his first crore through cryptocurrencies last year. He owns about 80 to 100 bitcoins, and also invests in other virtual currencies like Ethereum, Ripple and OmiseGo (OMG).

He laughs when he hears himself being referred to as ‘bitcoin crorepati’. “I keep telling my friends all this is virtual money, I don’t have anything in my hands,” he says. “I take calculated risks and only look at long-term goals,” says Haldipur, who started by investing Rs 45,000 to Rs 50,000 four years ago. “When prices dropped in June and July, to about $1,800, I bought 50 to 60 (bitcoins) more.”

Since Haldipur keeps his portfolio diversified by regularly transferring bitcoins into fiat currency and investing in other cryptocurrencies, sudden dips or price fluctuations in the market don’t really affect him much. This is also his advice for newbies: diversify your investments, don’t bank on bitcoins alone.

Few things have divided the world as the bitcoin — the first of all cryptocurrencies. There are those who swear by the glorious, cashless-future that the bitcoin depicts, and then there are those who are just waiting for this so-called bubble to pop. Because essentially, these cryptocurrencies are but lines and lines of code, operating far away from the watchful eyes of banks.

When the bitcoin was first designed in 2008 and launched in 2009, it amounted to almost nothing. In late 2015, one bitcoin cost about Rs 20,592. (One doesn’t have to buy an entire bitcoin: you can buy fractions of it for as low as Rs 1,000. These fractions are called ‘bits’.)

Bitcoins, like other cryptocurrencies, are ‘mined’ and transactions take place via a secure record-keeping database on something called blockchain technology, hailed as the next best thing after the creation of the internet — and sliced bread.

Technology-enabled mining of bitcoins is like mining gold. The genius of bitcoin creator, the anonymous Satoshi Nakamoto, is that he treated it like a natural resource: their number is sealed at 21 million bitcoins.

The process requires not just technical know-how, but also ceaseless (and expensive) gear upgradation, besides a constant supply of electricity. It’s no surprise that trading in bitcoins continues to be more popular than mining it.

Despite the absence of clear guidelines or a rule book from the government, cryptocurrencies continue to drum up a loyal following in India. Start-ups like Unocoin, Zebpay, CoinSecure and Bitxoxo allow you to buy, sell and trade bitcoins in India, and they are all on their toes trying to keep up with the number of people signing up with them. On an average, over 2,500 Indians trade in bitcoins on a daily basis.

Among them are those who look upon Haldipur as a poster boy of sorts for his success story with digital currencies. He is regularly accosted by strangers online, all in search of how to make a quick buck. A good share of these messages on LinkedIn and Facebook request him to handle their portfolios. “I tell them I can share reading material, but I turn down portfolio-management requests,” says Haldipur. “Most just want to know how much and where to invest. They don’t want to understand the technology.”

Haldipur trades on Indian as well as international exchanges like Bittrex and Poloniex. Bitcoins on these exchanges are more affordable than those available in India, where even fluctuations seem to be more — as the latest volatility has shown. This explains why Shashank, even if he gets up at 2 am, reaches out for his phone to check the buy-and-sell rates on Zepbay, the Indian app he’s registered with.

After an initial investment of Rs 2,500, his profits took him to Rs 5,343. On Thursday, that had come down to Rs 4,700. Yesterday (September 15), it was Rs 3,650. All this within a month’s time, but that hasn’t made Shashank wary. He’s only buying more.

“We aren’t very far off in terms of bitcoin value from international exchanges, but each country has its own bitcoin demand and supply graph,” says Sumanth Neppalli, cryptocurrency and blockchain expert at Ahmedabad-based Zebpay. One reason for the rates to be higher, he says, is because India has more demand than supply today. “But overall, demand for bitcoins is going up all over the world,” he adds.

Just last week, New York-based venture capitalist Jalak Jobanputra had come down to Mumbai to introduce a gathering of over 300 high networth individuals (HNIs) to investments in blockchain technology and cryptocurrencies.

“Jurisdictions around the world are looking at regulation for cryptocurrencies and I wanted to introduce the audience to the infrastructure applications behind the technology,” she says. “As we get more data and machines online, it will be important to make sure the data storage and any communication between entities is secure and unhackable.” Jobanputra’s Future Perfect Ventures has backed the first pan-Africa blockchain-powered payment network, BitPesa.

In Japan, where over 200,000 stores accept bitcoins, the tax reform bill eliminated consumption tax on the sale of bitcoins. And in London, a housing company announced this week that it will start accepting down payments in bitcoins.

Back home, you can book bus tickets using bitcoins on eTravelSmart, or pay phone and DTH bills using any of the Indian platforms. Bitcoins can buy you a pizza in Mumbai’s Kolonial Café, or a spa session at Castle Blue. In Karnataka, you can shop from Sapna Book House, or pay fees at the Dharwad International School. You can even introduce someone to bitcoins through gift cards offered by Warangal-based Bitxoxo. These cards start at Rs 5,000 and go up to Rs 25,000.

The primary reason businesses have not embraced bitcoin payments is because of unclear regulations on cryptocurrencies, feels Ajay Mallareddy of Flying Spaghetti Monster, a chain of restaurants. For over a year now, Mallareddy has been in limbo about accepting bitcoins. “I’m a strong supporter of decentralised digital currency, but the government keeps sending mixed signals about bitcoins. As a business owner I’d just like to be clear about the government’s stand,” he says.

Up until now, cryptocurrency startups have worked by banding together under a self-regulatory body called the Digital Asset and Blockchain Foundation of India. Educated regulation alone can help new technologies by acknowledging positive uses and weeding out the “bad actors” looking to exploit the technology, feels Jobanputra.

“All-out bans don’t work with decentralised technology. Japan, England, South Korea and Australia have all taken a favourable regulatory approach by legitimising certain cases and providing a positive tax environment for virtual currency,” she says. The jurisdictions that don’t educate themselves and ban virtual currencies, stresses Jobanputra, will lose out in the global business environment.

The potential for virtual currency is limitless, feels Hyderabad-based blockchain entrepreneur Rashmit Gupta. Some time ago, Gupta beta-tested a search engine called SearchTrade, rewarding members with bitcoins for every search on its platform.

Its members could also buy keywords that would earn them cryptocurrency every time anyone used those. SearchTrade claims to have sold around 1,500 keywords, like ‘Modi,’ ‘Kapoor,’ ‘apple’ and ‘nightlife’. Up next, using other cryptocurrencies and SearchTrade’s own “Internet Dollar” (to be launched by Diwali), Gupta hopes to introduce over 11 different services. One of these will be a picture-sharing platform where keywords and hashtags can be bought: every time users ‘like’ something, they will be awarded cryptocurrencies.

Absence of the government’s blessing has, however, stopped many entering the trade. “Some have bought bitcoins purely out of the speculation; they think they’ll profit from it in the future,” says Mallareddy.

For Shashank, the future may still be distant, but for Haldipur, it is already here. Like any gamble, it all boils down to catching the right wave at the right time.

The RBI, while still being suspicious of cryptocurrencies (as the latest statements indicate), is not unaware of the power of the cryptocurrency wave. The central bank, Sen has said, is studying the prospect of issuing its own ‘fiat cryptocurrency’.

“This in itself is a good thing. This means they are at least willing to engage with the technology,” says Sathvik Vishwanath, the co-founder of Bengaluru-based Unocoin that has about 430,000 members and is adding 40,000 to 50,000 new users every month.

“If the government also issues such a currency, it will not be decentralised. It will have a whole new set of properties and a different architecture altogether,” says Benson Samuel, co-founder of Delhi-based CoinSecure. “Cryptocurrency for a specific geography is actually a bit of an oxymoron; it doesn’t make sense. Iceland has already shown this,” he says. Iceland’s ‘Auracoin’ had failed in 2014, but it has been trying to make a comeback since 2016.

Only a few days ago, JPMorgan Chase & Co’s Jamie Dimon slammed bitcoin, saying it’s “a fraud.” John McAfee of MGT Capital Investments, a technology holding company, challenged this criticism saying it costs over $1,000 to create a bitcoin. “What does it cost to create a US dollar? Which one is the fraud? Because it costs whatever the paper costs, but it costs me and other miners over $1,000 per coin. It’s called proof of work,” he argued.

As battle lines between believers and non-believers continue to be distinct, bitcoin trade in India will only continue to grow with companies like Bitxoxo and others laying the groundwork for bitcoin-education workshops across the country while the government decides how to proceed.

Back in Bengaluru’s Suryawanshi, Shahshank walks out having paid his food bill in cash. His bitcoins, despite his friend’s insistence, have survived the trip to the restaurant. “It’ll grow. I’m sure it’s better not to spend it,” he says. “Subject to market risks, yes,” shoots back his friend.

Bengaluru’s Suryawanshi restaurant, which accepts bitcoin as a form of payment

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