Bitcoins and other cryptocurrencies will see increasing use in India, according to industry players, who say that, right now, the sector is too small to be regulated by the Reserve Bank of India (RBI) or Finance Ministry.
Bitcoin companies also say that volatility in the cryptocurrency’s price is likely to continue since it is still attracting new investors with inadequate knowledge about the market, with speculation separately fuelling the price gyrations.
“The fluctuation has always been there, but suddenly there has been a surge because of a few reasons,” said Vivek Steve Francis, CEO of Coinome. “One, things that are happening in the market. Some countries have legalised cryptocurrencies like Japan and Korea, and in the U.S. they have announced that there will be bitcoin futures trading. So, this not only gives a legal standing to it, it also opens the door to speculation.”
“The second thing is that people are seeing others put in ₹1 lakh and making 10% the very next day, so that is also bringing a lot of laymen into this, which may or may not be a good thing,” Mr. Francis added.
‘Disaggregated market’
Another reason for the price volatility, something that will continue for some time, is the disaggregated nature of the bitcoin market.
“Since bitcoin is widely distributed and the majority of it is not owned by a limited number of people, that makes it volatile,” Ashish Agarwal, founder of Bitsachs, said. “As far as the future is concerned, I won’t want to comment on the price, but adoption will increase. Now, the serious investors are eyeing bitcoin. No newspaper or serious person would have mentioned bitcoin five years ago, but now all eyes are on it.”
While the RBI has cautioned against its use, informing users, holders, investors and traders dealing with virtual currencies that they are doing so at their own risk, Securities and Exchange Board of India Chairman Ajay Tyagi recently said the cryptocurrency had so far not posed any systemic risk. He added that the government had formed a panel to examine it.
Regulators, both domestic and global, have been closely watching the swift surge in the price of the virtual currency.
“The growth which is right now happening is exponential for bitcoin in India,” said Kumar Gaurav, CEO of Cashaa. “Every day we see a 40-50% growth in the Indian market. And the growth rate is coming because the Indian market is still in early stages. The market share of India in the global level is still not very much. The decisions by the Indian government will not impact the global market.”
Looking ahead, Mr. Gaurav said any attempt to regulate cryptocurrenies ought to first look at the exchanges, as that is where the transactions are taking place.
“If you want to regulate it, it will come under the RBI or the Finance Ministry,” Mr. Gaurav said. “But before they come into it, the market needs to reach a sufficient size. I still don’t see a stage where the government needs to seriously be thinking about bitcoin. But if they want to, then what they can do based on the best practices abroad, is to regulate the exchanges. These exchanges need to be regulated heavily, with proper audits, KYCs checks, limits on customers.”
Data from these audits could then be used to develop a licensing system for firms that want to use bitcoins, Mr. Gaurav suggested.
