During the Indian Parliament’s Budget Session two months ago, all eyes were on a proposed bill to ban cryptocurrency trading in the world’s second-most populous country. The well-publicized bill sparked a large-scale campaign within the local industry encouraging the government to establish proper regulatory framework rather than an outright ban. Ultimately, the bill did not pass the parliament, leaving the state of India’s crypto industry uncertain.
In an interview with Forkast.News, Neeraj Khandelwal, co-founder of Indian crypto exchange CoinDCX, explained that local investors took this as a sign the bill may never pass, and actually laid the groundwork for further — much welcomed — regulation. As a result, the Indian retail and institutional market began booming.
From April 1 – the start of India’s fiscal year – any company that deals in cryptocurrencies now must disclose crypto holdings to the government through their financial statements. While some were skeptical of this development, others in the industry welcomed it as an auspicious sign that the government could be leaning toward regulation rather than an outright crypto ban.
Watch Neeraj Khandelwal’s full interview with Forkast.News Editor-in-Chief Angie Lau to learn more about his thoughts on the future of the crypto industry in India, the case for CBDCs, what the Coinbase listing means for the crypto industry, and more.
- Coinbase listing felt around the world: “Regulators might not always understand the dynamic technology that is growing at a very rapid pace. They might not be up to the pace with that, but they understand the listing. They perceive listing as something that is getting legitimized by the government, by one of the large governments in the world.”
- Why an India crypto ban is unlikely: “The government had a plan to introduce a bill to ban the crypto assets, but it could not lay the bill down, precisely because as soon as the news came out for the crypto ban in India, so many industry players just became very vociferous. There was a huge campaign against the government by the community.”
- How a digital rupee can compete with UPI: “They want to come out with a digital currency and they are exploring. It’s not new. More than 80% of the central banks across the globe are trying to experiment with CBDC in various capacities. So it’s not new but of course, India has UPI, its Unified Payment Interface, which provides you free-of-cost and instant transaction of money between peer-to-peer, in peer-to-peer fashion. So RBI sees CBDCs as in competition to the UPI payment system.”
- Why digital currency will one day replace paper money: “There were coins a thousand years ago, and today we have paper money which is better than coins because it is more portable and it is easier to store, etc. Now, the next version of the money would have to be digital money. Digital money, of course, is very different compared to the money that you put in the bank. It’s also something you see on your mobile phone. That’s also digital. But there is a huge difference. For example, digital money can have an expiration date. Which means that if you want to kickstart your economy during downtime, you can just give people money and put an expiration date that you have to spend it before so and so date. Otherwise this will get expired. This is not possible with paper money, and that’s how digital money is going to overshadow all the other forms of money very soon.”
- The role of non-fungible tokens in India’s future economy: “I believe that NFTs can add a lot of value to the economy by curtailing the piracy off of digital art like songs and videos. So India as a marketplace, has a lot of piracy problem. Compared to probably other countries. India has a lot of piracy problems. People don’t want to spend that much money on buying a song for example. They will just copy it from somewhere and just download it from somewhere else. It works that way. So NFTs can play a great role there.”
Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast.News, I’m Forkast Editor-in-Chief Angie Lau.
It has been over a year since India’s Supreme Court reversed the banking ban on cryptocurrencies, but regulatory threats continue to snap at the industry’s ankles. Local crypto industry, however, has not missed a beat. Mumbai-based WazirX recently launched a new NFT marketplace, Polygon in Bangalore — the tech hub in India is being embraced by notable dapps, and leading exchanges like CoinDCX continue to see surges in users.
Well, joining me today to discuss the latest crypto trends from his vantage point in India, which remains strong despite clouds of regulatory uncertainty, is CoinDCX co-founder Neeraj Khandelwal. Neeraj, welcome to the show. How is Mumbai?
Neeraj Khandelwal: Thank you, Angie, Mumbai’s great. The weather is good. It’s going to be summer very soon and we are hoping for a great relief from Covid very soon. Things are going well. How about you?
Lau: I don’t think anyone in blockchain or crypto has missed a beat with Covid, with the weather, it seems the temperature all round when it comes to crypto remains hot since January, regardless of temperatures outside.
Let’s talk about the hottest thing happening right now. And I think it had a lot of crypto exchanges, certainly around the world and in this part of the world, in Asia, paying close attention and being very excited. Coinbase’s direct listing on Nasdaq was reported that around five billion worth of shares were sold off, including close to 300 million from CEO Brian Armstrong. That’s quite the payday from a guy that started Coinbase as a YC accelerator just nine years ago. It closely touched 100 billion worth of valuation before selling off a little bit, obviously. But what was your reaction to Coinbase listing? What was the reaction across the industry in India and certainly from the perspective of a crypto exchange?
Khandelwal: Angie, when Coinbase was getting listed and two months leading up to that, we consider it as a very significant event. I personally think that this is where traditional finance gets all the interest that it has in the crypto streamlined because a company which is valued beyond US$75 billion, which is generating US$1.8 billion in revenue per quarter in the last quarter. It catches eyeballs. And when it gets listed on the stock exchange like Nasdaq, it attracts eyeballs of each and every person in traditional finance, be it any country, be it India. India is not an exception.
This is what Indians understand. This is what the stock exchanges of India understand. The regulators take note of such events that this industry is mainstream. This is a message more than anything else. This is a clear-cut message that the crypto industry is huge. It’s growing at a very rapid pace as such a young company can get listed at such a huge valuation and it gets listed after passing all the hurdles, after all the checks that are put in place by the SEC, Securities Exchange Commission. And after that, a company gets listed.
It’s huge and it gives confidence to all the Indians and to people across the globe, that the people, the crypto community is very confident after this listing. I believe this will allow more companies to get listed gradually. This is the first one, the first major listing in the crypto industry. And this will lead to many companies applying for listing and getting listed eventually. So I think this is the beginning of how crypto will become mainstream.
Lau: Interesting, do you think the regulators in India view the Coinbase listing, even despite it being based in the United States as a point of legitimacy, that maybe this is something that they can’t ignore if they want to grow their own unicorns in the space?
Khandelwal: Yes, absolutely. Regulators might not always understand the dynamic technology that is growing at a very rapid pace. They might not be up to the pace with that, but they understand the listing. They perceive listing as something that is getting legitimized by one of the large governments in the world. As for our conversations with the regulators, of course, India is not close to getting exchanges listed very soon. But it’s in the talks and it incites the conversations that we are having with the regulators and the regulatory scenario has become a lot more positive since the last four months. Since, of course, because of the Coinbase listing and so many other events across the globe.
Lau: Well, if you just take a quick look at the back of the envelope calculations on Coinbase, and this is close to US$100 billion valuation pre-direct listing on Nasdaq a week ago, and they have 56 million users for that exchange. India is a country of 1.4 billion people. If there is a significant, even if there is an equal percentage of uptick in India, you have just got such a larger base of potential retail customers on crypto exchanges. And yet the regulators, however, still remain quite tepid about it. I note that RBI Governor Shaktikanta Das continues to voice his concern on crypto. He also made it clear that he recognizes that blockchain is different, but crypto is still a concern. How do you take that when people, including the RBI, remain tepid on crypto?
Khandelwal: I think their concerns are very legitimate. As a central bank, they want to protect investors. They want to protect investors from any kind of bad investments. That is their first job. That is how we hold them responsible. So I think it’s fine. But things have changed by a lot.
There has been a dramatic change in how the government, the RBI understands blockchain and crypto. So earlier, when they were trying to ban it, RBI was considering cryptocurrencies as something which is a currency, which is a competition to the INR Indian rupees. The name suggests cryptocurrencies. But recently, it’s very clear and this is a new definition that is coming across and spreading, that cryptocurrencies are rather an asset class, not currencies. Asset class just like gold, asset class just like stock market — stocks. It’s one of the other asset class, which can be a very good hedge to inflation, or, of course, it will have more use cases with time. But this is a new technology-based asset class. And that has changed a lot of things, that kind of an understanding that new understanding has changed a lot of things.
The Reserve Bank of India and the government do not want the cryptocurrencies to be used as a payment method for buying and selling goods and services. Even the person who created the banning bill, they are also in alignment that, yes, it can be regulated as an asset class. They’ve publicly mentioned that earlier on some news channels. This is a very positive development and this has happened in the last three to four months.
In terms of numbers, Angie, I estimate personally that already there are more than 10 million people who have invested real money, their hard-earned money, into the crypto assets in India. The population is huge and 10 million is not that big a number. But it’s still big that the government cannot ban it because it’s 10 million people who have invested. If you ban the crypto assets, how will it be practical? How will it unfold practically? It’s really impractical to ban such a large industry. This is the current situation.
As for all latest discussions, the government had a plan to introduce a bill to ban the crypto assets, but it could not lay the bill down, precisely because as soon as the news came out for the crypto ban in India, so many industry players just became very vociferous. There was a huge campaign against the government by the community. People like Nandan Nilekani, you would know, they are the creators of UPI payment system in India, which is the most used payment system in India — they work closely with the government. They openly came out and voiced their concerns and humbly asked the government to accept the technology rather than ban it right away and put in place the right kind of regulatory environment rather than banning.
The government was not able to bring the bill into the parliament. We believe that the government is now, in fact, actually considering how to regulate and then what can be done to facilitate the transactions and just regulate it. And of course, keeping in mind investor protection.
Lau: It’s once upon a time, it was too big to fail and now it is too big to ban. Just to have this robustness of conversation, even by the industry shows that at least you bought some time. In that time, there will be more education, more information, more understanding, we hope.
But we also saw something very interesting coming out of India. The RBI also announced that they’re looking into the development of a digital rupee or a central bank-backed digital currency. How critical do you think this will be to developing what India hopes to be a digital currency, its place in the world economy, and also perhaps the remittance industry?
Khandelwal: The banning bill itself stated that the government will also provide a framework so that a concept of digital currency can be introduced in the country, whatever regulatory framework is required for the Reserve Bank of India to develop it and run it. So that was very significant. Recently from our Ministry of Finance, a statement came out from Anurag Thakur, who is a prominent personality, that the government is very open to crypto assets. And they are, in fact, working towards building a solid specialty in that. Since a few years ago RBI has been saying that they are very much interested in the CBDC, which is central bank digital currency. They want to come out with a digital currency and they are exploring. It’s not new.
More than 80% of the central banks across the globe are trying to experiment with CBDC in various capacities. So it’s not new but of course, India has UPI, its Unified Payment Interface, which provides you free-of-cost and instant transaction of money between peer-to-peer, in peer-to-peer fashion. So RBI sees CBDCs as in competition to the UPI payment system. It is already one of the most advanced payment systems across the globe. Seeing how CBDC would be able to basically add value to the already existing payment system that we have in India.
In my opinion, there were coins a thousand years ago, and today we have paper money which is better than coins because it is more portable and it is easier to store, etc. Now, the next version of the money would have to be digital money. Digital money, of course, is very different compared to the money that you put in the bank. It’s also something you see on your mobile phone. That’s also digital. But there is a huge difference. For example, digital money can have an expiration date. Which means that if you want to kickstart your economy during downtime, you can just give people money and put an expiration date that you have to spend it before so and so date. Otherwise this will get expired. So this is not possible with paper money. And that’s how digital money is going to overshadow all the other forms of money very soon.
Lau: That’s what interest rates are for. That’s what yields are for. This is what savings vehicles are for. But to your point, how do you quicken and fasten the pace of what central banks do, which is trying to stabilize the volatility in the economy and lessen it, a soft landing versus a hard landing, and certainly having the digital component to be able to bake-in in a smart contract to the user. How do we incentivize people to spend? We either give them a discount and or put a negative yield on money and all of that stuff. But to your point, yeah, it’s an incredible technology tool.
Khandelwal: Yes. It’s an incredible technology. And this is the future. So what I mentioned is just one example. It just tells you how powerful a CBDC is compared to paper money. So I think this is an understanding which all the central banks are already experimenting with, including the Reserve Bank of India. And China has already rolled it out in the experimentation phase in various regions.
Lau: Absolutely. Yeah.
Khandelwal: So that is a trigger point for all the governments, including the RBI. We are in active discussions. But of course, it takes time. China has been experimenting with it since 2014. So it took eight to nine years to the country which is very technologically advanced — globally renowned for technological advancement. So I think it will take another five to seven years for India to come up with a CBDC. But it will certainly come out with it because there are lots of advantages for the economy, for how the government can manage the economy well. CBDC will play a great role there.
Lau: And I want to ask you about the latest mandate of corporates to disclose crypto holdings to the government as part of their financial statements. I’m curious — when you take a look at the landscape right now, what do you think this is going to reveal about India’s institutional interest in crypto?
Khandelwal: That’s an interesting question. So Angie, there are two things, one is: how many institutions do hold crypto at the moment and how many institutions will hold crypto when the deadline comes for this disclosure, which is in 2022? Right now, as an exchange, we also have an OTC desk as a product that is seeing a lot of traction from the institutions. I would not say as good as maybe U.S., but it has the traction of institutions which are coming to buy Bitcoins in large amounts compared to retail. It has been consistently increasing. And in the last quarter, it almost tripled compared to the last quarter before that. So this is growing at a very rapid pace.
So India is still working on the liquidity part. Fiat to crypto liquidity, because INR to Bitcoin conversion liquidity. As this liquidity is improving, we are seeing more and more institutions who are now capable of buying more assets because of this improved liquidity. There is a direct correlation there. And in this quarter we see another 3x growth in the number of institutions and in fact the money that the institutions are putting into the crypto assets. It’s a growing trend, and especially when the government was coming up with the bill, institutions kind of put a brake. They were not coming at that point in time. But as soon as the parliament session got over, there was a new flood of institutions who wanted to come in because now everybody believes that this is going to be positive and it’s not going to get banned because it’s now very difficult.
Everybody has that kind of mindset, and now we are seeing those institutions again coming back and investing again with more money. So that is the trend. I think very positively of the future.
Lau: So what I’m hearing from you is that because that policy did not get passed, because that proposed policy did not get passed in the last legislature session, it told the crypto industry two things and certainly corporates. It suggested that the government was going to hold off. It was going to allow the industry to have that much more time to thrive and potentially walk away from any banned language. And that gave people confidence to put more money into crypto. That’s what I’m hearing from you.
Khandelwal: Yes, absolutely. That is how it is. And that is exactly why. That is true with retail also. Bitcoin price has been rising since January. But after this bill was not able to place, the growth in retail has grown by 10x, not just 3x, like institutions.
Khandelwal: It’s growing like crazy. It’s almost exploding at exchanges. We are seeing that curve of growth, that point when the user base suddenly grows. Our team is actually just focusing on scaling the platform, not building new features, just scaling the platform. So we are able to catch up with the increasing user base. So that is the kind of explosive growth that we are witnessing right now. All this has happened because of the positive regulatory climate that is there in India today.
Lau: Yeah, and adoption in crypto is fine. That’s just the base, that’s the first phase. Sure, you’re going to buy Bitcoin, maybe you dip into Ethereum, suddenly you’re in altcoins. What about that next phase of growth? Like DeFi?
Khandelwal: Yeah, DeFi is very interesting. India has one of the largest workforce when it comes to blockchain technology and software development. It’s in the top three probably after China and the U.S. Naturally, a lot of Indians work either with global fintech companies in DeFi and blockchain. A lot of projects, as you mentioned, in India are already there, like Matic, EasyFi and a lot more.
Now a new trend that is coming, that we have witnessed is, so earlier in the mainstream media, we used to hear all about Bitcoin, and that’s all. At best, Ethereum sometimes. Mainstream media represents the state of understanding of people. Because people do read mainstream with the newspapers and the standard TV channels that we have. But now we can increasingly see mention of NFTs.
Khandelwal: A lot of times, I see the news and there is so much excitement, so much positive news about NFTs and how it’s going to impact the economy in a positive manner. In India today, people who understand Bitcoin, they know NFTs. It’s that much how it has been already spread across.
Lau: And we recently reported that WazirX just launched the NFT platform and that is just how quickly things are moving in India, for sure. Keeping up with what’s next.
Khandelwal: I believe gradually, things like arts, art forms, like music videos, etc. There is a scope of building good businesses there. Ultimately things flourish when there are good businesses. I believe that NFTs can add a lot of value to the economy by curtailing the piracy off of digital art like songs and videos. India as a marketplace, has a lot of piracy problems compared to probably other countries. India has a lot of piracy problems. People don’t want to spend that much money on buying a song, for example. They will just copy it from somewhere and just download it from somewhere else. It works that way. So NFTs can play a great role there. NFTs can bring efficiency and allow the creators of the content to generate more money, and hence, flourish this industry.
The next wave would be building the actual product based on NFTs. Actual products, songs being sold as NFTs. Movies being sold as NFTs. That is what I believe is going to happen within the next five years.
Lau: Well, Neeraj, I got to ask you, though, I mean, we were just talking about regulators in India. They’re still wrestling with the legal status of cryptocurrencies. NFTs haven’t even been discussed in parliament yet. It is catching like wildfire in the retail market. But how do you think that this is going to drive with policymakers and regulators? And how do you understand the legal status of NFTs in India? And do you expect some hurdles for this?
Khandelwal: Not really, Angie. So the difference is, see, the regulators are wary about the currency, cryptocurrencies destabilizing the economy in one way or another or about investor protection. NFTs don’t affect these things that much.
NFTs are more like applications of blockchain technology. The Indian government — almost all the ministries, even the PMO — has said that they are very open. Nirmala Sitharaman, the finance minister, has said that they are very open to blockchain technology.
In fact, India is experimenting with blockchain technology. Our one-time password OTP now comes via blockchain technology in India, to prevent any kind of DND, do not disturb messages. It’s already there. blockchain has been implemented amongst the network providers and all the OTPs have to pass by the blockchain network now. Experimentation is going on for interbank settlement that is already in advanced stages. So India as a country is very open to blockchain technology.
I see NFTs as just another application of blockchain technology, which is not in the financial domain directly, as such, it has implications out of financial domains also. A lot of them just like, streamlining the distribution of digital art. It’s not really related to how money works. It’s not really related to how foreign exchange management works.
When you’re talking about Bitcoin, Ethereum, a lot of things come into the picture like foreign exchange management and its complication with INR. Stock markets — how does this flow overall? So, of course, the government needs to be sure that it’s not negatively impacting the economy. But for NFTs, that’s not the case.
NFTs, I believe, is just another application, as long as there is good there is a good business model in NFTs, somebody is able to create a good business out of it, government will not have any problem because it’s more on the blockchain side rather than the cryptocurrency side.
Lau: And I think at the end of the day, what we’ve just discussed here is really the potential of India. The talent is there. The regulators, their concerns seem to be assuaged somewhat by the industry and certainly the pickup of interest among retail and even institutional investors in India 10x since the policy the bill was not passed, really suggests a level of appetite that can drive India’s implementation of cryptocurrency and blockchain into the next level. And certainly, that is what we’re watching here with your help Neeraj, at Forkast.News.
So I appreciated it greatly. Neeraj Khandelwal joining us on Word on the Block, CoinDCX co-founder. Thank you so much for joining us on the show.
And thank you, audience, for joining us on this latest episode, I’m Angie Lau. editor-in-chief of Forkast.News. Until the next time.