Despite its volatility, Indians are using bitcoin as an alternative way to invest and pay for items following the country's demonetisation move in 2016
Demand for bitcoin grows in India
Interest in bitcoin is growing in India despite a series of warnings from the central bank that the digital currency is a risky and unregulated investment.
Although the cryptocurrency is reputed for its volatility, it has gained appeal along with other virtual currencies following India's demonetisation move in November last year.
Last week the virtual currency reached record levels of close to US$20,000 amid a buying frenzy, before dipping back to around $16,000.
“Bitcoin has seen a dream run in the last year,” said Vikram Pandya, the director of the fintech programme at SP Jain School of Management. “Like other countries, many people from India are attracted towards it with expectations of getting high returns in a quick time.”
Since the start of October, bitcoin has more than tripled in price and soared about 15 fold so far this. Its rapid rise has drawn in millions of new investors, which is boosting demand further. Its surge last week came as speculators feared missing out on what is expected to be a watershed for the cryptocurrency on Sunday, when one of the world's largest regulated exchanges begins futures trading of the digital currency.
“Unlike earlier times, rather than putting or investing their money in bank fixed deposits, saving policies, mutual funds and gold, they are becoming more aware about investing in bitcoin,” said Shivam Thakral, the cofounder and chief executive of BuyUcoin, a New Delhi-based platform for trading cryptocurrencies, including bictoin.
Bitcoin is now accepted by a growing number of retailers and other businesses in the country, such as restaurants, as cash liquidity has reduced following demonetisation, resulting in businesses moving towards alternative payment platforms.
Although the Indian government is trying to push Indians to move towards digital transactions to reduce the country’s heavy dependence on cash - which is hard to track and can facilitate black money flows - it has not yet thrown its weight behind virtual currencies such as bitcoin.
Arun Jaitley, India’s finance minister recently said the government did not recognise virtual currencies as ”legal tender”. He earlier highlighted there are no regulations governing these currencies.
The Reserve Bank of India (RBI), the country's central bank, on Tuesday issued its third warning to members of the public about the risks of investing in bitcoin and other virtual currencies.
"In the wake of significant spurt in the valuation of many virtual currencies and rapid growth in initial coin offerings, RBI reiterates the concerns," RBI said in a statement.
It highlighted that it had not given "any licence or authorisation to any entity or company to operate such schemes or deal with Bitcoin or any virtual currency".
RBI said that dealing with virtual currencies came with "potential economic, financial, operational, legal, customer protection and security related risks”.
Mr Pandya said: “In India there is no specific legal framework to govern the cryptoexchanges and hence currently they are self-regulated. No one is entirely sure how bitcoin will continue to spread to the larger financial world."
Mr Thakral said that RBI is worried over the lack of control they have over virtual currencies, as well as being “genuinely concerned about people who have less knowledge about investment in crypt-currencies which is an unregulated market”.
“With the widespread prevalence of cryptocurrencies like bitcoins and many others, central authorities like RBI are in a fix since they have no control on the generation and usage of such currencies directly,” he added. “Since this technology is not in the control of central authorities, there are many Ponzi schemes prevalent in the market in the name of bitcoin. It has hence made it hard for the government to track and or stop them.”
A number of companies in India now tap into the interest in bitcoin. One of these is Unocoin, headquartered in Bangalore, which describes itself as India’s first entrant into the industry, operating the largest bitcoin-Indian rupee trading platform in the country. The start-up launched in 2013 and enables its more than 150,000 customers to buy, sell, store, use and accept bitcoin. In September 2016, the company raised $1.5 million in investment from a consortium of investors, and it has outlined ambitions to expand globally.