The volatility in recent cryptocurrency prices have attracted considerable debates around the viability in their investments. However, despite the fluctuation, coupled with the economic slowdown due to the Covid-19 pandemic, cryptocurrency exchanges in India continue to see cautious but steady growth through these times.
It is this that is giving crypto exchanges cautious optimism in India, even though the economic slowdown has restricted the crypto industry of India to draw the full potential to the boost given to the sector by the Supreme Court of India.
On the other hand, foreign portfolio investors have been actively pulling out of the Indian stock markets, with reports over the past month stating that over Rs 35,000 crore have been drawn out of Indian markets, showing a steep decline.
Intermittent growth
Speaking to News18, Sathvik Vishwanath, co-founder and chief executive of cryptocurrency exchange Unocoin, says, “The SC verdict gave the entire industry a brief boost, but then, the pandemic broke at around the same time frame, which did not let the industry players entirely understand what the current scenario with crypto in India. Despite that, transactions have continued to steadily grow on our platform over the past 30 days, and I would say that industry players have largely managed to earn a steady revenue flow to support investments and expenses.”
Although total transactions, users and volumes have increased over 10x, average purchases above Rs 50,000 are considerably lower than late 2017-early 2018
The same is also echoed by Sumit Gupta, CEO of CoinDCX, another Indian crypto exchange startup. Gupta says, “We didn’t see any marked decline in user growth. On the contrary, we witnessed 10x growth in the number of users on our platform after the RBI restrictions were overturned. The number (of users and transactions) has been consistently on the higher side, even during the Covid-19 situation.”
However, Atulya Bhatt, co-founder and director of BuyUCoin, reveals that the trend of growth may be largely restricted to small volume transactions, and this may be a clear indication that even though crypto assets show great potential as an alternate investment avenue, the approach from investors, small and large alike, remains mostly conservative. He says, “There was a clear time overlap between the SC verdict, global financial turmoil and the Covid-19 situation. Upon close inspection, we observed that although the total number of transactions, active users and volumes have increased more than 10x, the average amounts of purchases (above ₹50,000) are still considerably lower than late 2017- early 2018 data.”
Managing volatility
Despite positive reactions, the long-established factor of volatility cannot be ignored altogether. Historical data from Coinbase about Bitcoin reveals wild swings in fortune, which is mostly unsuitable for small or new investors, who would make up the largest chunk of people in India’s crypto ecosystem. For example, Bitcoin’s 5-year record shows its incredible growth run between November 2015 and December 2017, when it grew a staggering 58x in inflated valuation. Between April and July 2019, Bitcoin yet again showed a growth streak that pulled its value upward by 2.4x, before declining again. More recently, between April 16 and 17, the price of one bitcoin rose by 9.6 percent in a single day, before hitting a ceiling and showing slow decline in the past few days.
To discern these volatilities, Dr Garrick Hileman, research head of Blockchain.com, says that the immunity of digital currencies from many physical assets is what draws new users into the fold. He says, “Crypto asset prices were not immune to the mid-March global liquidity crisis, when nearly every asset sold-off except global reserve assets like US dollars and treasuries. Even traditional safe havens such as gold dropped in value, and the price performance of bitcoin in this type of acute liquidity crunch was expected.
“However, as the initial liquidity crisis abated, and the unprecedented size of the government fiscal and monetary response to Covid-19 became clearer, we've seen crypto asset prices rebound sharply. The price of bitcoin is up over 50 percent from its March 13 low, and for the first quarter of 2020, crypto assets like bitcoin held up significantly better than many stock markets and other asset classes (such as commercial real estate).”
Concerns over Covid-19 and the nearly certain prospect of future viruses will provide a secular boost to digital currencies
BuyUCoin’s Bhatt agrees, and makes a rather bold statement. He says, “The current volatility in the cryptocurrency markets was touted as the failure of the ‘bitcoin as digital gold’, while at the same time, the US Treasury and Feds are printing trillions of dollars ‘out of thin air’ as ‘relief money’. However, bitcoin as an asset surpasses these obstacles — it exists in cyberspace, isn’t constrained by state/national borders or logistics, and having a finite number of coins around the world, can’t be manipulated or forged. Hence, it continues to be the only practically available solution to global crises.”
Hileman further adds, “Crypto industry productivity and revenues have been relatively less impacted than other sectors of the economy. Looking ahead, concerns over Covid-19 and the nearly certain prospect of future viruses will provide a secular boost to digital currencies. It is demonstrating the value of alternative, redundant-backup systems for critical infrastructure, such as storing and moving value. There is also a boost to the adoption of many non-currency uses of blockchain technology, such helping people navigate fake news, food supply chain tracking, and e-voting.”
Unocoin’s Vishwanath said, “I don’t expect crypto businesses to be affected so much that they get battered. It will mostly be a slight dip in the curve, which we are all prepared for at any given time.”
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