The best case scenario for the Bitcoin economy in India at the moment would be the creation of a self-regulatory body rather than burdening regulators like the Securities and Exchange Board of India (SEBI), according to Sandeep Goenka, co-founder, Zebpay, India’s largest Bitcoin exchange.
“In the beginning, because there are so many changes happening to the industry and it is very difficult for the government to follow, they can simply allow us to form a self-regulatory organisation (SRO) on the lines of the Mutual Fund Association of India, Internet & Mobile Association of India, or the Payment Council of India,” Mr.Goenka said in an interview.
“SEBI also started as a self-regulating organisation. They themselves created the regulatory structure which after many years became an official regulatory body,” he said.
While Bitcoins and other crypto-currencies are currently not regulated in India, the government is considering various options, including banning such currencies, or allowing them to be transacted under the regulation of SEBI.
Mr.Goenka said the government should not consider banning Bitcoins as they are increasingly being used as store of value. The Bitcoin trade on Zebpay has risen from ₹100 crore per year as of last year to ₹200 crore per month this year.
Zebpay currently accounts for 70% of the Bitcoin market in India and trade on their exchange shows a rapid increase in the demand for the crypto-currency in India, he said.
However, Bitcoins in India are still viewed as investment options rather than as a currency, like it is in countries like South Korea. This brings with it the added complication of how to regulate it—as a currency or as a stock.
“With a lot of these payment technologies it becomes difficult to decide that it is just one thing based on an older existing model,” Mr Goenka said. “It is a complicated decision for the government. But international best practices have been that currently, Bitcoins are being regulated by the central bank. But that will remain a challenge, because many times it works like a stock.”
“That’s the beauty of an SRO, that while the industry is evolving, the government does not take the burden of the responsibility. Instead, the industry does,” he added.
Exploding Demand
“We are currently where the internet was in 1994-95, before mass adoption,” he said. “I think it (mass adoption) will happen globally in 3-5 years. It just takes one company like AirBnB or Uber to start accepting Bitcoins globally, and it’ll be like the Paytm moment that happened when Uber partnered with them.”
In 2010, a Bitcoin was worth only Rs 5, which quickly rose to Rs 30,000-40,000 last year, and now it is at Rs 175,000, according to Mr Goenka.
“It is still affordable, since you can buy a fraction of a Bitcoin,” he said. “People are still buying with the anticipation of prices still going up. They are buying it as an investment, but there are no transactions in India since merchants are likely waiting for a critical mass of users and adoption.”
Verification Process
Mr Goenka also stressed that the perception that crypto-currencies are predominantly used for illegal purposes is not based on fact, and that the world over, the verification process to trade in Bitcoins was quite stringent.
“Typcially, everybody (in India) has to do a verification process where you submit your PAN card and bank account details,” Mr Goenka said. “It is self-regulation. We want to avoid bad actors and this is a great discouragement where all transactions take place only using banking channels and the PAN is attached to every transaction. We do not all cash or even e-wallets. All the exchanges globally have similar verification processes.”
He added that the volume of Bitcoin trade globally is about Rs 25,000 crore a day and less than 1% would be used for illegal activities, if that.
“Even with the US dollar or Indian rupee, the bulk of the currency is being used for normal, legal transactions,” Mr Goenka said. “It is only a small fraction that is being used for illegal operations. It’s the same for Bitcoins. For most people in the world, it is used for potential investments.”
