At 1.32 billion, India’s population may have already taken over China’s - making it the most populous country in the world. According to a study by PricewaterhouseCoopers', at least a whopping 233 million Indians still don’t have bank accounts.
Although due to demonetization (a government’s move that got rid of 86% currency notes in circulation) and under Prime Minister’s Jan-dhan Yojna (an initiative to open bank accounts for every Indian household), a lot of people have managed to get their bank accounts, but that number is far from 200 million mark.
Ironically, India has one of the largest remittance markets in the world with a total value of close to $70 billion. On every transaction, an average user pays up to 15% in bank charges and conversion fees.
Bitcoin provides a solution to India's underlying problems. The digital currency can be used to move money inexpensively across borders within a matter of minutes without ever having a bank account. It’s important to note that lately bitcoin adoption is taking over its network capacity, leading to delay in transactions and very high fees (more on this later).
India’s take on bitcoin
On November 8, prime minister of India announced demonetization of Rs. 500 and Rs. 1000 rupee notes (86% of country’s currency notes in circulation). This move was not only to curb black money problems in the country, but also to push people to go digital and use online wallets instead of cash.
After demonetization India saw a rise in bitcoin demand like never before. For the first time premium on Indian exchanges crossed $300, leading to many arbitrage opportunities.
Hundreds of articles started pouring in claiming that the bitcoin price rally was fueled by demonetization, but Sandeep Goenka, founder of Zebpay, India’s largest bitcoin exchange, had later argued that there was no such link. He said, “This is because India has a negligible share in the bitcoin industry. For the international bitcoin community, demonetisation was yawn , a non-event”.
According to him the price rally that India saw was because of global bitcoin price touching an all time high, but people in India mistakenly related that to demonetization.
What about the premiums though? Why did they skyrocket?
Sandeep said, “Yes, in India the prices were at a premium above international prices but this is common. It happens all the time when the US$ price increases due to low liquidity in Indian markets. The premium on prices had increased sharply even in mid-June, which was the previous major bitcoin price rally.”
The Indian government is in the midst of deciding whether or not to regulate bitcoin. In the past, there have been multiple warning from the government and central bank asking people to stay cautious of virtual currencies, emphasizing they are not regulated by the RBI (Reserve Bank of India).
With the explosive growth that bitcoin has seen since the beginning of 2017, government seems to be reconsidering their stance on bitcoin. Earlier this year, India’s Ministry of Finance (FinMin) established an interdisciplinary committee to study the legal framework surrounding virtual currencies.
Recently FinMin also sought public opinion on virtual currencies after stating that ‘the circulation of Virtual Currencies which are also known as Digital/CryptoCurrencies has been a cause of concern’.
Local reports from India hint at government is already in the process of preparing norms for the regulation of virtual currencies. All signs point toward the government legalizing and taxing bitcoin and other virtual currencies. A ban on cryptocurrencies like bitcoin is highly unlikely and would be counter-productive to government’s own “go cashless” agenda.
While on one hand government is looking to regulate bitcoin, on the other it is actively keeping a close eye on businesses dealing with bitcoin and cracking down on illegal bitcoin activities .
Conclusion
In India bitcoin is far from mainstream. The daily volumes of local bitcoin exchanges are negligible as compared to exchanges in China and the US.
That being said, after demonetization, interest in bitcoin has definitely gone up. More people want to know about bitcoin. Young generation in particular is getting attracted towards the cryptocurrency.
Bitcoin has the potential to thrive in developing countries, but not if transaction fees are higher than the living wages. The whole point of having bitcoin in the first place is to transfer money quickly from one address to another with bare minimum fees.
If bitcoin manages to scale, keeping its core principles intact, there is nothing that can stop it from prospering in the developing world and beyond.