As the SEC’s approval of landmark Bitcoin ETF fuels a price rally, the world’s most populous nation is scrapping its crypto dreams.
It wasn’t much ago when Indian business entrepreneurs were trying to build their crypto credentials. Ethereum wallet addresses adorned Twitter profiles. Over a dozen VC firms have attempted to publish their own investment theses on web3, some even lowering the high bar for credentials to hire new crypto-savvy analysts.
Several new partners, fearful of missing out on potentially life-changing deals, persuaded the old guard to greenlight investments in early-stage crypto startups at frothy valuations of $30-100 million. Crypto would be big and they looked to find the next Flipkart or PhonePe in the growing digital asset sector. Pitch meetings filled with the 200th crypto exchange idea or 33rd NFT market idea that month.
The excitement was understandable. Crypto has been hot globally and India’s tech scene is booming. The consensus among major US investors was that India would double its GDP by 2030. Indian startups had already raised over $100 billion in the last 10 years. Naturally, global crypto VC funds have flooded into India, hoping to repeat the home runs that Accel, Sequoia and Lightspeed had hit a decade ago.
With crypto becoming mainstream, it seemed like the next logical step. Bullish reports predicted that India was home to over 100 million crypto participants, despite the fact that far fewer actually participated in any investment vehicle. Hackathons attracted thousands of young engineers, selling dreams of big paydays and a once-in-a-lifetime chance to reinvent financial markets and the internet.
Then the tide turned.
Cryptocurrency prices that were once “heading for the moon” have reversed course towards the center of the earth. Ethereum wallet addresses disappeared from Twitter bios. Companies shelved half-written crypto think pieces. Partners shifted their focus to other areas, reassigning analysts to move beyond digital.
But prices were only half the problem in India. An equally thorny issue has been restrictive regulation under the central bank, the Reserve Bank of India, which has long opposed cryptocurrencies. Despite an earlier blanket ban being overturned in court, regulators have persisted in likening cryptocurrencies to Ponzi schemes and pressured banks to get involved with any crypto startups.
Without broader adoption of cryptocurrencies, this banking restriction has made the integration of fiat currencies extremely difficult. Coinbase learned quickly after its CEO Brian Armstrong’s triumphant launch in India in 2022, only to have the transaction halted days later when the RBI denied compatibility with the mainstream payment network UPI.
New restrictive policies like 30% tax on crypto transfers and mandatory 1% TDS on virtual asset purchases have further reduced transaction volume. After processing more than $43 billion in value in 2021, the volumes of the Indian exchange WazirX collapsed to $1 billion last year.
Apple’s removal of a dozen global crypto apps – based on large merchants in India, in part because of its tax-evading qualities – from its Indian App Store appears to be the final nail in the coffin, capping a brutal two years. The pending removal from Google Play, ISPs and more caps a journey full of shutdowns, spin-offs and overseas relocations for Indian crypto startups. The web3 dreams of local entrepreneurs now seem shattered on the rocky shores of regulatory resistance.
Some entrepreneurs are still fighting for the Indian cryptocurrency dream, asking New Delhi to reconsider the punitive 30% tax on cryptocurrencies. But the tea leaves clearly foreshadow what lies ahead. Lawmakers continue to painstakingly crystallize their stance.
