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Why Silicon Valley is pouring big money into India’s crypto industry

While Delhi goes back and forth over a crypto ban, crypto’s huge growth potential in the world’s second most populous country is captivating American venture capital.

The titans of venture capital like Peter Thiel, Mark Cuban and Tim Draper are betting on Indian cryptocurrency startups, setting their sights on India’s vast potential despite continuing mixed signals from Delhi about crypto regulation and the industry’s legal prospects in the world’s second most populous country. 

Just this month, India got its first crypto unicorn in CoinDCX, one of the largest cryptocurrency exchanges in the country. The startup raked in US$90 million from a host of investors including Eduardo Saverin’s B Capital, Coinbase Ventures and Polychain, among others. 

The investments in India’s cryptocurrency companies appear to be part of a larger trend of foreign investments in the country. Indian startups and companies have raised unprecedented amounts of foreign funding, mainly from Silicon Valley. Investors are bullish on the Indian market, with some believing that the next 10 years could be a “golden moment.”

Rahul Gaitonde, an Indian cryptocurrency investor and investment advisor, told Forkast.News: “The Indian tech scene is seeing investment from the West across an increasing number of sectors — including in cryptocurrency companies.”

The total investments raised by Indian cryptocurrency and blockchain startups are breaking records. In the first six months of this year, cryptocurrency companies have already raised more than US$99.7 million in funding, compared with US$6.3 million in 2016.

Late last year, Draper, who was an early investor in companies like Twitter, Tesla and Skype, led a US$5 million funding round for Unocoin, one of the oldest cryptocurrency exchanges in India. In May 2021, “Shark Tank’s” Cuban, who has a net worth of over US$4 billion, invested an undisclosed sum in blockchain startup Polygon, formerly known as Matic Network. 

Last month, Thiel-backed Valar Ventures led a US$25 million round in Vauld, a cryptocurrency banking and lending platform. While Vauld is headquartered in Singapore, the majority of its team is based in India. 

But it’s not just Silicon Valley investors who are registering interest. Well-known investors from across the United States are placing huge bets on the growing Indian cryptocurrency ecosystem. For instance, in April, CoinSwitch Kuber, a cryptocurrency exchange geared towards young users, raised US$25 million from New York-based technology hedge fund Tiger Global. Global cryptocurrency exchanges Coinbase and Binance have also invested in the space in recent years. 

“There’s a growing base of world-class crypto projects being created in India that are inherently global in nature,” Gaitonde said. 

He added: “Crypto companies are being built in India for global markets, from the decentralized survey company BlockSurvey to the Ethereum-scaling company Polygon, among others. The market for these are not limited to only Indian customers. Investors see the sheer potential for scale for these companies.” 

Investors see massive potential for growth in the Indian cryptocurrency market. An estimated 10 million people in India are now crypto holders, according to The Hindu BusinessLineIndia has a population of 1.4 billion, many of whom remain underserved by traditional financial services — which could mean hundreds of millions more cryptocurrency users in the coming years. 

‘Too large a market to ignore’

“It is too large a market to ignore,” Gaitonde said, “and in such a case, there’s always a fear of missing out, or FOMO, among investors, despite the regulatory uncertainty.”

According to data reported by cryptocurrency exchanges, India is on track to become a significant cryptocurrency market. Most big exchanges in the country have registered massive growth in users since last year. 

And the trend hasn’t slowed down this year. India ranked second in cryptocurrency wallet creation in July 2021, Bitcoin.com reported. And Unocoin doubled its user base in the first quarter of this fiscal year, compared with the last quarter of 2020. 

WazirX, one of the biggest cryptocurrency exchanges in the country, reported 2,375% growth in new user sign-ups from large Indian cities, referred to as Tier I cities, this year. Interestingly though, the most rapid growth in user sign-ups on WazirX came from smaller Tier II and Tier III cities, accounting for 55% of total user sign-ups in 2021.   

This indicates that the cryptocurrency industry in India is slowly maturing with increasing awareness and literacy, even in small towns and cities. In an earlier interview with Forkast.News, WazirX COO and co-founder Siddharth Menon said that back in 2016–17, cryptocurrency awareness in the country was in a “really bad” state. Currently though, women from smaller cities who started with basic investments now have in-depth technical knowledge of the cryptocurrency industry that rivals even Menon’s, he said.

Unocoin recently launched a new feature that enables users to spend Bitcoins to purchase vouchers of more than 90 well-known brands in India. These brands span across sectors, including food, travel, jewellery and lifestyle. Prior to this, no platforms enabled Indians to spend cryptocurrencies on everyday product purchases; Bitcoins could be used for only phone and utility bill payments. 

The feature by Unocoin is likely to drive more cryptocurrency adoption in India. Since Unocoin’s feature acts more as a barter system than a payment mechanism, it could be safe from the regulatory wrangling that has put the future of cryptocurrencies in India in question. 

Regulatory uncertainty

Crypto’s legality and legitimacy in India has had a tortured history. Despite a Supreme Court ruling in March 2020 that overturned a previous crypto banking ban, India’s central bank has repeatedly espoused banning cryptocurrencies for payments. Meanwhile, the Indian government officials have been sending mixed signals, one day saying that crypto should be banned and the next day indicating that crypto businesses might have a “window of opportunity.”

And while Indians await regulatory clarity, the government seems to be in no hurry. A  cryptocurrency bill, which was introduced in the winter session of Parliament but never discussed, has been postponed indefinitely. In the meantime, Indian cryptocurrency businesses do not have any comprehensive guidelines to follow.

Despite the regulatory clouds that continue to hang over India’s crypto industry, Silicon Valley investors remain bullish on India crypto’s future.

After investing in Unocoin, Draper said in an interview that he met with several Indian cryptocurrency startups and was hoping to invest in “a number of them.” 

As the growth in high-profile foreign investments bring more visibility to India’s cryptocurrency industry, those in the industry say, this could help India’s policymakers form a more positive image of crypto, an industry that the government regulators recently admitted it lacks basic information on and probably also doesn’t understand very well.