Buzzwords such as cryptocurrency and Bitcoin have once again been put under the scanner in India, in the wake of the legal contentions between the Reserve Bank of India (RBI) and the Supreme Court, regarding the Crypto Token and Crypto Asset (Banning, Control, and Regulation) Bill, issued by the RBI in 2018, which was finally struck down by the Supreme Court in the Internet and Mobile Association of India v. Reserve Bank of India judgment delivered in March 2020. The verdict noted that cryptocurrency could now be accepted as a legitimate payment for the transaction of goods and services, and these payment regulations would fall under the purview of the RBI. In this context, it is fitting to analyse the potential of cryptocurrency to usher in new economic growth and seek the answer to whether the revitalization of the Indian economy will at all be possible through cryptocurrency.
The blockchain race between China and the USA speaks volumes of the significant traction afforded to the cryptocurrency sector worldwide. The think tank Astamuse, based in Tokyo, reported that China, in as early as 2016, had already overtaken the USA in filing a record number of cryptocurrency patent applications. The International Data Corp reported that the global value of blockchain investment was touted to reach a $16 billion valuation in the next five years. For India to miss out on this new wave of fintech capital inflow would be a loss of epic proportions. This investment has already benefited our neighbours in the global South – emerging economies such as the Philippines have initiated local crypto exchange licensing regulations while strengthening investor protection, and countries such as Singapore have already received over $700 million in investments. Given India’s prowess in consistently producing a highly skilled IT workforce, it is imperative for us to harness this dual advantage of investment and innovation to bolster our economic growth. Greater investment into the economy, coupled with a transition of the local innovation sector towards a blockchain ecosystem, will help us leverage our strengths towards revitalising the economy. Cryptocurrency has the potential for the emergence of new markets, start-ups, products, and services, in a wave of fresh innovation leading to the birth of several aligned industries while boosting the IT job market – of course, with nurturing and support from institutions such as the RBI and the Supreme Court – to breathe a fresh lease of life into our economy.
While this analysis deals with macro structures of institutions and corporations, cryptocurrency also has an important role to play in the financial inclusion systems of the country. In India, a sizable population is still unbanked, a reason for which is a lack of access to functioning traditional financial mechanisms. The cryptocurrency sector can serve to create a more dynamic ecosystem of coexisting financial institutions with a parallel digital money management service, leading to broader financial inclusion. Opening up access to high-performing international markets trading in cryptocurrency can even stand to increase the purchasing and spending power of ordinary citizens, which can have a rippling effect on the economy due to the nature of cryptocurrency value appreciation over time. A firm legal stance on cryptocurrency such as the 2020 Supreme Court verdict, which upheld the validity of Article 19(g)(1) in the context of cryptocurrency, aids in the awareness and acceptance of virtual currencies, ultimately leading to a legitimising of their role in the economy. A similar model has already been shown to be successful in Japan, which recognises the validity of digital currencies as legal property since 2017. According to a 2017 Business Insider report, this led to an increase in the trading volume of Japan which jumped from one to six percent. The same report mentioned how currency turbulence issues in China led to cryptocurrency being perceived as more stable than a traditional currency, culminating in increased investment by their citizens.
In the recent period of time, Cryptocurrency has experienced drastic surges and drops in price. The popularity of bitcoin has massively increased and its growing appreciation for adoption as a means of payment has pushed the barrier for bitcoin prices much higher. More than a whopping 250 million users will have the opportunity and willingness to buy and use as well as store bitcoin for future usage. Interestingly, there are other popular online payment companies that have started to accept cryptocurrencies such as PayPal and this just makes the audience more exposed to bitcoin. But more importantly, the major reason as to why there has been an exponential increase in the bitcoin prices is because the marginal cost of production of bitcoin has proliferated due to the increased difficulty in mining. On the other hand, the price of digital currency has also fallen by 30% because people were intimidated by China’s warning that using digital currencies can be unsafe and perilous. So, as we can see, there have been constant fluctuations in the prices of bitcoin the present and it seems to be a very volatile currency.
Reports from both CRISIL and Goldman Sachs have predicted that India is currently facing its worst recession. However, data from Bitcoin marketplace Paxful provides an interesting insight – despite the Covid pandemic and economic decline, the Indian crypto industry has shown record-breaking growth, registering a whopping 883% increase in the trading value of Bitcoin compared to last year. Paxful data even goes as far as to claim that three out of four Indians who are aware of cryptocurrency have invested in it. OKEx, a globally established crypto exchange platform, reported that registrations from Indian users increased to almost 550%, which ultimately reflected in both local and global trading volume boosts. The overarching message seems to be clear – there is hope that cryptocurrency has the potential to generate entrepreneurship and job growth which can spell light at the end of a very bleak tunnel of record unemployment highs, pave worldwide social and economic growth in the face of newly emerging fiscal needs, and fuel financial freedom in new India.
