INCREASED LIQUIDITY in global financial markets and the Supreme Court order early last year allowing use of banking infrastructure by cryptocurrency platforms has led to top investment firms, such as Tiger Global, Sequoia Capital, B Capital and Andreessen Horowitz, pumping in over half-a-billion dollars in India’s cryptocurrency and blockchain technology space in 2021 so far.
This is nearly eight times the investment raised by companies in this segment cumulatively in the preceding four years. The trend assumes added significance in the wake of the Government signalling Tuesday its intent to bring a Bill prohibiting “all private cryptocurrencies in India”, with “certain exceptions”.
The single biggest chunk of fund-raising by a cryptocurrency platform in India was announced on October 6 when CoinSwitch Kuber raised $260 million in a round led by Andreessen Horowitz and Coinbase Ventures, with existing investors Sequoia Capital India, Tiger Global, Paradigm and Ribbit Capital also participating.
The funding round also catapulted the cryptocurrency platform into the unicorn club with a valuation of $1.9 billion, nearly four times the $500 million it was last valued at less than six months ago.
The surge in investment from global investors is a clear indicator of the size to which trading and investment in digital currencies has grown in the absence of clear guidelines regulating the space. According to conservative estimates, India has around 15 million people involved with trading or investments in cryptocurrencies — almost 60 per cent of the 25 million investors in its 58-year old mutual fund industry.
Information from data intelligence platform Tracxn shows that companies in the cryptocurrency and blockchain space have raised $503.98 million in 2021 so far from global marquee venture capital and private equity investors. Crypto exchange Coinbase’s venture arm, fintech firm CRED’s founder Kunal Shah, decentralised finance developer Andre Cronje, and billionaire investor Mark Cuban have featured in the list of those investing in this space in India.
Of the total amount raised, the data show, start-ups operating cryptocurrency exchanges and trading platforms alone raised a bulk of the amount: $427.53 million. These investment firms have also backed some of India’s biggest names in the tech and start-up segments, including Flipkart, Byju’s, Meesho, PharmEasy, Zomato, Unacademy, Urban Company.
In April 2018, the RBI took a stance on cryptocurrencies and banned all banks from dealing with virtual currencies, effectively cutting off the money supply into these digital assets. However, in March 2020, the Supreme Court overturned the ban.
Currently, the Government is engaged in detailed discussions with experts and industry associations on regulation and taxation of cryptocurrency. Earlier this month, Prime Minister Narendra Modi had chaired a meeting in which it was agreed that the steps taken will be “progressive and forward-looking”.
Significantly, most large banks, including State Bank of India, ICICI Bank, HDFC Bank, have not yet allowed use of their infrastructure by these exchanges.
The banks to have partnered some of the largest cryptocurrency exchanges, such as WazirX, CoinDCX, etc., include Punjab National Bank, IDFC First Bank, Federal Bank, Deutsche Bank, Bank of India, Bank of Maharashtra and Indian Bank.
In 2020, investment in cryptocurrency and blockchain technology platforms was only $32.30 million through 17 investment rounds. Yet, this was almost three times the $11.10 million raised in this segment in 2019. In 2018, the number was slightly higher at $13.51 million.
According to data from Coinmarketcap, a data platform owned by the world’s largest cryptocurrency exchange Binance, five India-based cryptocurrency exchanges — WazirX (owned by Binance), CoinDCX, Giottus, Zebpay and Bitbns — together clocked 24-hour trading volumes of $977.68 million on the spot market as of Wednesday evening.