Is India done with cryptocurrencies?

Image credits: Malte Müller/Getty Images

It wasn't long ago when Indian venture capitalists were scrambling to establish their credentials in the cryptocurrency space. Ethereum wallet addresses adorn Twitter profiles. More than a dozen venture capital firms rushed to publish their investment thesis for web3, some even lowering their high standards for credentials to hire young analysts well-versed in cryptocurrencies.

Many young partners, fearful of missing out on potentially life-changing deals, convinced the old guard to greenlight investments in early-stage cryptocurrency startups at phony valuations of between $30 million and $100 million. Crypto was going to be big, and they sought to find the next Flipkart or PhonePe in the booming digital asset space. Pitch meetings were filled with the 200th cryptocurrency exchange concept or the 33rd NFT market idea that month.

The excitement was understandable. Cryptocurrencies were popular globally, and the tech scene in India was booming. The consensus among major US investors is that India will double its GDP by 2030. Indian startups have already raised more than $100 billion in the last 10 years. Naturally, global cryptocurrency venture capital funds have flocked to India, hoping to replicate the local runs achieved by Accel, Sequoia and Lightspeed a decade ago.

With cryptocurrencies becoming more popular, it seemed like the next logical step. Bullish reports have predicted that India will host more than 100 million cryptocurrency participants, although few participants in any investment vehicle actually exist. Hackathons have attracted thousands of young engineers, promoting dreams of huge rewards and a once-in-a-lifetime opportunity to reinvent financial markets and the Internet.

Then the tide turned.

Cryptocurrency prices that were once “heading toward the moon” have reversed course toward the center of the Earth. Ethereum wallet addresses have disappeared from Twitter bio. Companies shelved half-written cryptocurrency ideas. The partners shifted their focus to other sectors, reassigning analysts to move out of digital assets.

But prices were only half the problem in India. An equally thorny issue is restrictive regulation under the central bank, the Reserve Bank of India, which has long opposed cryptocurrencies. Although the previous blanket ban was overturned in court, regulators have continued to liken cryptocurrencies to Ponzi schemes and have pressured banks from doing business with any cryptocurrency startups.

Without widespread adoption of cryptocurrencies, this banking restriction has made attaching fiat currencies very difficult. Coinbase learned quickly after CEO Brian Armstrong's triumphant launch in India in 2022, only to halt trading days later when the Reserve Bank of India refused to align with the main UPI payments network.

New restrictive policies such as a 30% tax on cryptocurrency transfers and a mandatory 1% TDS tax on virtual asset purchases have reduced trading volumes. After processing over $43 billion in 2021, trading volumes on Indian exchange WazirX collapsed to $1 billion last year.

Apple's deletion of dozens of global cryptocurrency apps — relied upon by India's top traders, partly due to their tax-evading properties — from its Indian App Store appears to be the final nail in its coffin, capping a brutal two years. The pending delisting process across Google Play, ISPs and beyond ends a journey full of shutdowns, pivots and offshorings for Indian cryptocurrency startups. It now appears that the dreams of local Web 3 entrepreneurs have been dashed against the rocky shores of regulatory resistance.

Some entrepreneurs are still fighting for the Indian cryptocurrency dream, demanding that New Delhi reconsider the 30% cryptocurrency tax. But tea leaves clearly foretell what awaits us in the future. Lawmakers continue to painstakingly formulate their position.