A millennial crypto victory greater than the price of bitcoin

• By Andy Mukherjee / Bloomberg Opinion

With the speed that cryptocurrency is emerging as an alternative asset of choice for the millennial generation in India, it’s hard to imagine that just two years ago a couple of blockchain pioneers were briefly in police custody.

Sathvik Vishwanath and Harish BV, co-founders of a five-year-old start-up, were arrested in late 2018. No, they didn’t come up with a shady initial coin offering.

Their “crime” was setting up a kiosk in a shopping mall in Bangalore where customers could exchange bitcoin, ether or ripple for money or vice versa. This was the whole point of unocoin, their crypto token exchange. However, the police were suspicious of the new “ATM”.

Much has changed since then. Unocoin, which has just raised funding from Tesla Inc backer Tim Draper’s Draper Associates, is thriving, alongside other Indian blockchain initiatives.

India’s share of person-to-person virtual currency trading in Asia increased to 33%, the same as in China, according to volume analysis by Oslo’s Arcane Research on Paxful and LocalBitcoins, the largest trading platforms. transactions in the region.

Some of this is no doubt due to bitcoin’s bubbling rise this year, which recently hit $ 100 from its all-time high after surpassing $ 19,000 for the first time since 2017. Even after Thursday’s swing, the prices have even more than doubled this year.

However, fundamental factors are also at play. Sending money to India in a tokenized form, thus avoiding heavy bank fees, is becoming an option.

Some digital asset exchange clients, possibly tech-savvy freelancers, receive tokens at regular intervals as payment for their work and convert them to rupees via their local bank accounts. Families in India use the same channel to send money to students abroad.

Having the largest diaspora in the world – and more than $ 100 billion in two-way cash flows last year – isn’t the only thing.

Indian Prime Minister Narendra Modi’s disastrous ban on 86% of the country’s currency in November 2016 shook Indians’ faith in fiat money. Add the fear of leaving banks behind when three major deposit-taking institutions have crumbled over the past 15 months. No wonder Arcane expects Indian cryptocurrency volumes to exceed those of China.

The national wealth management sector is also helping the adoption of cryptocurrencies, thanks to its incompetence.

Most large-cap fund managers have struggled to beat their benchmarks, especially in recent years. The NIFTY 50 has only returned about 2% annually in US dollar terms over the past decade. However, as Bloomberg Intelligence’s Gaurav Patankar and Morgan Barna demonstrated, the lack of performance hasn’t stopped managers from pocketing high fees.

Disgruntled younger savers are taking notice and dipping their toes into US exchange-traded funds. At 1%, the international allocation is still meager, analysts at Bloomberg Intelligence said, but it is growing rapidly.

Ditto for cryptocurrency investments, although holding a highly volatile long-term digital asset is not for the faint of heart.

Only 600 of unocoin’s 1.2 million customers have initiated a systematic purchase plan to invest (mainly) in bitcoin, but 99.5% of them are sitting on profit and have to brag about it to their friends.

There is a damper – adjustment. Nobody wants a return to 2018, when the Reserve Bank of India, the monetary authority, ordered banks not to entertain clients who traded in virtual currency.

The draconian approach has nearly strangled the Indian blockchain revolution.

The action against the unocoin kiosk in Bangalore was like the heavy hand of the state crashing into a child’s lemonade stand. If people in India’s tech capital couldn’t pay cash to buy digital tokens, the asset was effectively banned nationwide.

In hindsight, the founders’ ordeal with the police turned out to be a blessing in disguise. Young entrepreneurs teamed up, went to the Indian Supreme Court in New Delhi, and got central bank management for the banks declared unconstitutional.

It was March. The exchange has already seen a fivefold jump in trading, averaging $ 150,000 per day, from $ 30,000 prior to the court verdict.

Trading has been much higher recently, thanks to the rise in bitcoin prices. Larger exchanges, such as CoinDCX, had daily volumes of nearly $ 700,000.

Gamers are urging the Indian government to subject digital assets to existing money laundering law, which would give the industry legitimacy. The next step would be to regulate the tokens as money or securities, depending on their use.

The phlegmatic Indian bureaucracy may wonder if this is all a mania. Maybe not. Nor is it unique to millennial Indian consumers and Gen Z. Wringing the global banking sector from its exorbitant fees and putting more purchasing power in people’s hands after the COVID-19 pandemic would be a global goal.

In their study, titled “What We Must Do to Rebuild”, economists at Deutsche Bank AG advise companies and policymakers to design alternatives to credit cards and to “remove middleman fees.”

In the short term, conventional financial technology would help, but in the long run, all major economies would do so by replacing cash with their own central bank digital currencies.

This is the time when older consumers would join. If they didn’t, they would get stuck, and not just figuratively. Automatically activated encrypted “smart contracts” would allow self-driving vehicles to change lanes faster than others. Commuters would continually pay each other in official digital currencies or stablecoins like the libra proposed by Facebook Inc, private tokens whose values ​​are fixed relative to fiat money.

Indian millennials read tea leaves well.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He was previously a columnist for Reuters Breakingviews. He has also worked for Straits Times, ET NOW and Bloomberg News.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.