November had the Chinese government continuing its ramp-up towards more stringent cryptocurrency crackdown measures calling crypto mining an ‘extremely harmful environmental practice’ and threatening to impose fines on those who don’t adhere to the diktat. This move comes after its reiteration on the illegal status of crypto trading and other related activities, being not in alliance with the country’s law earlier this year.
Crypto industry pundits call this lost Chinese opportunity a chance for India to overtake China in the coming decades. An intriguing possibility, isn’t it? It is time for us then to look at how China’s loss can be India’s gain.
The Chinese Crackdown and its Implications
China has been the biggest cryptocurrency mining country globally until the crackdown, with a 65% share in the Bitcoin hash rate. Chinese crypto exchanges are witnessing dwindling fortunes on the crypto front while the world readies itself to partake in the $3 trillion crypto revolution.
Conversely, it has been quite enthusiastically pushing forward its own blockchain-based CBDC – The Digital Yuan. The DCEP (Digital Currency Electronic Payment) trials of its CBCD are already underway and might be officially rolled out at the 2022 Winter Olympics in Beijing.
The cryptocurrency ban is probably to eliminate any competition to its digital currency, centralize the economy further, and use its DCEP system as a tool for financial surveillance.
Let’s talk about the Indian context next before we delve into a head-on comparison between the two.
The Indian Crypto Opportunity: An Easy Access to a New Source of Alpha
While China is busy hammering down its autocratic decrees over its flourishing digital economy, cryptocurrency investments in India have grown to a whopping 6.6 billion by May 2021, witnessing a growth of 400% in just one year. A Nasscom report suggested that at the current pace, the Indian cryptocurrency market is expected to reach $241 million by 2030.
“CryptoTech industry in India has not only demonstrated a positive impact at the grassroots levels but is emerging as one of the fastest-growing technology sub-sector. India provides the most unique ecosystem to CryptoTech to play a transformative role in strengthening key priority areas such as healthcare, safety, digital identification, and trade and finance.”~ Debjani Ghosh, President, Nasscom.
Around 15 million crypto users are there in India, which constitutes 30% of the entire population. The younger breed is the flagbearer of the current crypto shift, with 40% of the total share of cryptocurrency investments. Cryptocurrencies can create more than 8 lakh jobs by 2030 and add $184 billion economic value in the form of investments and cost savings. Additionally, China’s crackdown also gave a lot of Indian investors multiple buying opportunities.
It is likely that very soon, a part of the crypto mining facilities might shift their base to India creating employment opportunities for the youth. A report published by Nasscom in association with WazirX titled ‘Crypto Industry in India’ revealed that more than 230 startups are already active in the CryptoTech space.
Talking of global trade, India’s dependence on the US dollar and its political relationship with the US have often restricted its export-import opportunities. With Bitcoin and blockchain-based payment gateways, India could thrive on the international trade front transacting borderless trade and bringing home the best-in-class services and products. On the other hand, China has already suffered a setback during the pandemic.
Ready for a match, then? Read on.
India vs China: The Implications and Possibilities
Centralized China vs International India
Cryptocurrency markets are a vast expanse in the borderless digital world. They are a mark-up from the traditional financial systems that are prone to inflation, restrict cross-border dealings, and suffer from government invasion.
China’s economy currently presents a contrary picture to the above. It is an isolated, centralized economy getting restricted each day and is seeing steep dips in cryptocurrency adoption across all parameters. While across the world, cryptocurrency adoption has grown by more than 880% since the previous year and by almost 2300% since Q3 of 2019, China’s global ranking in cryptocurrency adoption has fallen to 13th place this year.
On the other hand, India is all set to lead the most significant exodus of developer talent from web 2.0 to web 3.0. Hundreds of developers and freelancers working abroad have started requesting to be paid in cryptocurrencies. Many of them, having worked previously in tech unicorns, work full-time in ETH or Defi Ecosystem and trust the decentralized infrastructure of these cryptocurrencies.
Krishna Sriram, Managing Director at Quantstamp, says, “Tons of Indian developers, fund analysts, and independent freelancers working for overseas employers have started requesting to be paid in cryptocurrency. It’s a very bottom-up way of adopting.”
Even if the people seek their fortunes abroad, they can send remittances home. India can easily follow an internationalist capitalist strategy backed by the digital India initiatives that are already in place.
Also, the Chinese crypto crackdown doesn’t mean the Chinese would stop investing in them; it only means that the exodus of a large section of investors will now direct towards Indian exchanges.
Surveillance State vs Decentralized Diaspora
The Chinese citizens never had any financial privacy earlier. With the DCEP in place now, the government would have unlimited power to exclude individuals and businesses from the financial system. Experts state that CBDC’s end aim would be to collect as much data as possible on citizens, which could be used to control or blacklist them.
Though the Indian crypto scene is still fogged on the regulatory front, it is nowhere near a ban, and talks are underway to tax cryptocurrencies as digital assets. At the same time, the government has already initiated full-fledged research on the adoption of a CBDC and its implications for the economy.
India is seeing commendable traction from the youth, especially in Tier-2 and Tier-3 cities where banking services are still insufficient. One could imagine the level of financial inclusion that India can attain once cryptocurrency regulations are in place.
On the decentralized front, India also has a much larger share of crypto activity on DeFi platforms at 59%. There are almost 4x as many cryptocurrency investors in India as there are equity investors. This is because equity investment is a long, cumbersome process, while crypto investment takes less than an hour, thanks to trusted platforms like WazirX. Many of the investors have shifted from real estate to crypto recently.
CBDC vs Cryptocurrency
CBDCs are closed systems and cannot interact with each other without mediators. This creates barriers to exchange and friction in cross-border payments. Also, due to security reasons, the central banks won’t allow people to access their systems, defeating the very purpose of cryptocurrencies. Moreover, in the case of a CBDC, the central bank would become the sole authority controlling finance in the country with no public-private digital currency collaborations.
Talking of China, that’s quite a dangerous prospect. Also, crowding out cryptocurrencies or private tokens would only stifle innovation and might cripple access to digital payments.
All over the world, in markets including India, blockchain tech is being adopted as go-betweens for public-private collaborations within national economies and international public-to-public interactions. Decentralization in the digital space is steadily transforming global payment systems where end-users demand greater control over their money. Besides, the cryptocurrency platforms are solving problem areas that traditional institutions haven’t touched so far. Then there are NFTs, Defi, gaming, Metaverse, auctions, and every real-world possibility taking place on the blockchain, all backed by the blossoming crypto economy.
A recent PwC survey held that India could be the world leader in crypto adoption over the next five years if the appropriate degree of business and government engagement is ensured. Cryptocurrencies are already changing the existing fintech landscape in India. Homegrown cryptos are gaining worldwide traction, like Matic Network, one of the top competitors for Ethereum.
By taking a progressive stance on the current crypto craze building up in its citizens, the Indian government can hugely benefit from China’s crackdown to overtake it in the coming decades. The winds of change have arrived. It is for the country to decide whether to develop the decentralized route or close the doors for the opportunity that would forever change the face of the Indian economy.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.