Cryptocurrencies have become extremely popular over the past couple of years or so, to the extent that even in those countries where they are restricted or banned, people have found a way to invest in them. India is one such country, although restrictions on crypto trading were relaxed earlier this year. The effect of the COVID-19 pandemic has meant that the value and volume of crypto trading has shot up this year, and that has been seen in India as well, which has become the second-largest crypto market in Asia behind China.
Over the last five years, Indians traded a total of nearly $95 million worth of bitcoin, or 10,017 bitcoin, which was only second to China, with 20,553 bitcoin traded worth $181 million. Of this, nearly $75 million was traded this year alone, showing a staggering increase of almost 350% over 2019. This was largely down to the Supreme Court’s ruling back in March, which removed the Reserve Bank of India’s ban on cryptocurrencies. Within months of that decision, various crypto exchanges such as CoinDCX and WazirX had all seen huge spikes in trading volume as well as new users. Another reason for this growing trend towards crypto has been the poor performance of emerging market currencies against the dollar this year, once again due to the pandemic. Continuing weakness of these currencies to the dollar will likely lead to even more flows into bitcoin, as people look to preserve their wealth, being unable to do so in their local currency.
The online adoption of cryptocurrencies has also been a big factor behind its growing popularity. Being a digital currency, it was always likely to be picked up first online, and that has been the case, with several online merchants and service providers beginning to accept crypto payments. Online casinos have been perhaps the most eager to adopt cryptocurrencies, and this has led to a rise in their popularity as well. There are many examples of an Indian bitcoin casino today, where users can place bets using crypto, and then withdraw their winnings in the form of crypto as well. This has made it extremely attractive for many players to use crypto, and has also contributed to the popularity of the same.
The effect of the pandemic has also been to increase the correlation between bitcoin and equity markets. This may not be good news for many who were investing in bitcoin as a hedge or as a growth option for their portfolios, but this indicates that bitcoin is becoming part of mainstream financial markets, which can only be a good thing in the long-term. There is still a long way to go before bitcoin comes close to becoming a safe haven asset, like gold or the US dollar. But it could become an international currency of sorts, especially if sovereign governments continue to keep pumping money into their economies to fund a post-COVID recovery, due to the resulting potential inflation and devaluation of currencies.
There is still a need to regulate cryptocurrencies, especially in countries like India, where there are many millions who are financially illiterate and therefore prone to scams and fraud. Rather than restricting the activity altogether, bitcoin trading needs to be made safer, to give people the confidence to invest in the currency. Doing so will only help those economies in the long run, as people will have a stable asset where they can park their funds, rather than risk the value of their asset depreciating due to inflation or other economic factors which are out of their control.