On the crypto fence

Regulatory changes may have put investors into wait-and-watch mode, but believers continue to come in

Everything about entrepreneurship, the good, bad and the ugly of it, fascinates me. I take a keen interest on startups and venture capital firms and have written extensively on fundraises, M&As and business strategies. I can safely say changing tracks from engineering to journalism has been one of my best decisions. When not working, I indulge in almost every Indian's poison, cricket, playing or watching. I am a foodie and video game buff.

g_114073_shutterstock_1112025233_cryptocurrency_280x210.jpgThe steady rise in value of crypto currencies until 2017 attracted a lot of investors
Image: Shutterstock

They came, they saw, but, didn’t budge, despite multiple prods by Tim Draper, founder of Silicon Valley investment firm Draper Fisher Jurvetson. For Prashant Sharma and Niti Shree, alumni of the Draper University, a San Francisco-based school run by Draper to mentor entrepreneurs, crypto currencies were intriguing, but not intriguing enough to invest in.

Draper was among the early proponents of crypto currencies and blockchain technology. Boost VC, a venture capital fund run by his son Adam Draper, has reportedly invested in over 100 crypto and block chain companies. “He [Draper] advised all of us to buy a bitcoin. All of us ignored it as most people didn’t understand why it will become big and others didn’t know enough to invest,” recalls Sharma, who went to Draper University in 2014.

Niti Shree, an alumna of the 2015 batch and now married to Sharma, echoes the sentiments. “In my batch, a student from Brazil paid the entire tuition fee of $10,000 with bitcoin and still I wasn’t enthused,” she says.

Sharma’s nonchalance to crypto currencies went a few notches higher. He claims to have been given a few satoshis from a startup funded by Draper for free as a promotional offer, which he never tried to encash. “I don’t even remember the login key,” he says grinning.

Cut to 2017, crypto currencies, especially bitcoin had become mainstream. Sharma and Niti Shree, who were then running a recruitment startup called Offrd in Bengaluru finally sat up and took note.

The first bitcoin they bought was mid-2017—a few satoshis worth 5,000 to gift a crypto enthusiast friend on his birthday. Next, for their own investments in crypto, the couple, who were about to get married in December that year, devised a novel plan—they asked the guests at the wedding to gift them crypto currencies. At the end of it, they had accumulated bitcoin worth about 1 lakh.

Around December 2017, bitcoin was trading at $10,975-19,140. Ethereum, another popular crypto currency, was valued at $443-780, while Litecoin traded at $102-366, according to data from coinmarketcap.com, a crypto currency tracker.

Things would go downhill in the months to come. Between January 1, 2018 and March 1, 2019, Bitcoin, the most traded crypto currency, slumped from $13,791 to $3,857. Similarly, Ethereum crashed from $747 to $137 while Litecoin slumped from $234 to $47 during the same period.

According to industry observers, the steady rise in value of crypto currencies until December 2017, attracted a lot of investors whose intention was to make a quick buck. Many of them did not fully appreciate the underlying blockchain technology, unlike early evangelists like the Drapers, which created a bubble that eventually burst.

“There were many people who wanted to accumulate wealth in a short span, unlike the early adopters who appreciated the value of the underlying technology and blockchain projects. For them, making money was secondary to evangelising the product,” says Akshay Aggarwal, country head of Blockchained India, a community of crypto and blockchain enthusiasts.

The bubble aside, regulations in India weren’t conducive either. In a notification on April 6, the Reserve Bank of India, in a diktat to banks, non-banking financial institutions and payment service providers, noted: “In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs [virtual currencies] or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/ sale of VCs.”

The central bank’s initial concerns, among other things, may also have been triggered by sporadic reports of frauds around crypto currencies across the country involving companies such as GetBitCoin, ATCcoin, BitConnect, OneCoin. ZebPay, one of the country’s oldest crypto exchanges, shut shop citing regulatory challenges. So did CoinSecure.

Sharma and Niti Shree say a lot of their friends lost money. The couple did not go overboard like some of their peers in buying cryptos. In fact, they refrained from making further investments in cryptos in 2018 and restored to conventional investments and savings tools such as mutual funds and fixed deposits.

Says Nischal Shetty, co-founder of WazirX, a peer-to-peer crypto exchange (one that does not require the platforms to have a bank account and hence, are still allowed to operate in India), “As soon as the banking regulations came into play, and banking operations stopped for the exchanges, the new user base reduced drastically,” he says, adding that new people are worried more about the regulations than about crypto per se.

According to industry observers, an investor, on an average, buys crypto currencies worth about $1,000 every quarter. WazirX now sees about 5,000-10,000 new user registrations every month, as against about 1,000-2,000 registrations every day in March 2018. Shetty says a significant majority of WazirX users are in the 18 to 24 age group, essentially people “connect with these [blockchain and crypto-related] projects and terminologies.”

“Right now the regulation is anti-crypto. You can’t expect an industry to grow with an anti-approach. This is like you are trying to kill it even before it has proven itself. None of the financial biggies in the world have banned crypto and are watching the space,” says Shetty.

So are Sharma, Niti Shree and many of their friends, who own some satoshis to several bitcoins. According to Sharma and Niti Shree, neither they nor their peers have sold their holdings. “The spirits are down, but people have not given up. They are sitting on the fence, observing,” she adds.

Even Sharma and Niti Shree are gearing up to re-enter the crypto scene. The plan is to put about 50,000, about 5 percent of their overall investment, every year starting 2019, in crypto currencies.

Says Sharma, “The bubble has burst and there is sanity. Given the condition of the market, for someone who wants to play a long-term game of at least 10 years from an investment point of view, now is the right time.”

(This story appears in the 29 March, 2019 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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