Cryptocurrency trade may be more action-packed in 2021, say analysts

The network to promote cryptocurrencies will likely become larger, say analysts

Cryptocurrencies are expected to see increased activity this year with more avenues opening up for their utility, including banking services, trade, and remittances, apart from the investment interest in India.

Trading volumes have increased almost eight times since March after the Supreme Court allowed banks to deal with cryptocurrency exchanges.

As 2021 started, the price per Bitcoin, the world’s largest and oldest cryptocurrency, crossed $34,500 globally on January 3.

However, it slipped a day later to $30,000 levels. In India, it is currently around Rs 22 lakh.

The sharp spurt in price has again generated curiosity among investors. As a result, 2021 is expected to see Bitcoin coming back in vogue.

Industry sources say non-traditional banking services specific to the cryptocurrency business will become more active. And the network to promote cryptocurrencies will become larger, enabling crypto exchanges to convert coins for use with merchants into rupees.

Kumar Gaurav, CEO and founder, Cashaa, said Cashaa, in association with Jaipur-based The United Multistate Credit Co-operative Society, with 43 branches, launched UNICAS, the world’s first crypto-friendly financial institution with physical branches.

UNICAS will enable people to access traditional banking services along with crypto-banking services, both online and through its 14 physical branches in Jaipur to begin with, scaling up to 100 branches across India by 2022.

Cashaa is banking on its beta platform of over 200 crypto businesses, including Nexo, Huobi, CoinDCX, and Unocoin. 

Those holding Bitcoin and other cryptocurrencies can buy products and services, and UNICAS will convert them into Indian rupees to pay merchants. In other words, merchants will be paid in a regular way by the payment processors. UNICAS will convert the cryptocoins and settle them with the bank to make the payment with the processor.

Cashaa is filling the gap left open after traditional banks discontinued providing banking services to crypto-exchanges when the Reserve Bank of India (RBI) prevented them from doing so. Now 90 per cent of India’s crypto exchanges are getting banking services from Cashaa, according to Kumar Gaurav. The crypto banker also provides loans against Bitcoin as collateral with a loan-to-value (LTV) ratio of 50-70 per cent.

Gaurav Dahake, founder and CEO of Bengaluru-based exchange Bitbns, said a small amount of remittance had also come through the cryptocurrency route this year. His exchange is also giving SIP (systematic investment plan) facilities for crypto investors.

Cryptocurrency penetration is increasing with 8-10 million accounts with various exchanges, compared to 5 million before the RBI had banned banks to deal with them.

The number of Bitcoins held and not daily traded by investors in India is estimated at 8,000-10,000. These estimates, according to industry officials, are of those holding cryptocurrencies in their individual wallets. Those who traded regularly and coins lying for trading in wallets maintained with exchanges are not considered here.

Jagdish Pandya, chairman of Block on Group, said the global trends of merchants accepting cryptos, wider applications of cryptocurrencies, and other avenues (remittances, etc) were catching up in India.

Pandya said the future of cryptocurrencies was promising though price volatility would be high along with its rising adoption.

For investors/traders, the key question is whether they should enter now. The crypto community is confident of Bitcoin trading at $50,000 per coin. 

Ajeet Khurana, however, has a word of caution for investors. “Whenever there is a ‘get quick rich’ attitude, investors lose common sense and scamsters misuse that attitude and greed of investors.”

Suril Desai, senior member, Blockchain and Crypto-Asset Practice, Nishith Desai Associates, is also bullish. He said, “Fiat currencies and many banks have become very manipulative as control is with the few whereas crypto is decentralised and open source, hence people seem to have developed more confidence.”

Pointing to how LIBOR became a scam and will be abolished from December 31, 2021, he said: “There are no controls on government printing notes after it delinked from gold. Most countries have not banned crypto. They regulate and levy tax on gains and increase revenue. Looks like there will be a huge interest and demand for crypto in 2021 as it begins to get more institutionalised.”

There is also talk of regulation being introduced for crypto service providers. So far, the government is not supporting it. But, some leading law firms have recommended regulations and are hopeful in the light of the Supreme Court order in March. Jaideep Reddy, leader, technology law, Nishith Desai Associates, said: “We have made regulatory suggestions to the government on how crypto-asset intermediaries should be licensed and regulated so as to protect consumers and yet promote innovation.”

Taxing cryptocurrencies will be another crucial issue. The government panel headed by former Union finance ministry Subhash Garg has not favoured cryptocurrency as a currency. However, in a webinar a few months ago, Garg had said that such currencies could be categorised as commodities. In that case, goods and services tax (GST) will apply to its buying and selling.

Abhishek A Rastogi, partner at Khaitan & Co, said: “As each supply is taxable under GST, cryptocurrencies will not be an exception. The valuation and rate for taxation will remain a subject of debate.”