The lifting of crypto trading restrictions from India remained one of the most exciting stories in the space this year. While the world's fifth-largest economy is expected to provide further regulatory clarity for industry participants who have local operations, the post-COVID economy downturn could be a pivot point that could fuel demand for cryptocurrency in India.


1. Indian FX & equities struggle to recover

The weak performances of the Indian currency and equities markets could be one of the reasons why investors in India may want to include cryptocurrency as part of their portfolio. Despite the relatively stable performance in 4Q19, USDINR and the Sensex have been significantly underperformed compared to BTCUSDT and Nasdaq in a one-year timeframe. INR has depreciated about 8% against the greenback, and Sensex gave up more than 20% of the value.

Figure 1: USDINR/BTCUSDT/SENSEX/NASDAQ 1-year Performance (as of 20 May) (Source: OKEx; Tradingview)


The weakness is especially noticeable in the post-COVID period, where BTCUSDT and Nasdaq have pretty much recovered to the pre-outbreak levels. At the same time, the recovery of USDINR and Sensex remained subdued.

As India confirmed its 100,000 th coronavirus case this week, we believe that the newly introduced economy restart measures could be challenged by the escalating pandemic situation in the country. That could derail some of the recovery efforts.


2. Inflation (or deflation) concerns

As the pandemic escalates, the Indian government has introduced an INR 20 trln stimulus package aims to help businesses to restart. However, that may also create another problem – inflation (or deflation in some cases), and that could be another reason why investors should take a look at crypto investment. India Finance Minister Nirmala Sitharaman added that the government would not hesitate to take more steps to boost the county's economy.

Figure 2: India Inflation Rate and CPI(Source: Tradingeconomics.com; MOSPI)


While it's reasonable to expect the government to step in to spur economic growth during difficult times, over/under-stimulus could also create price fluctuations.

The major narrative of the COVID era economy in the west seems more focused on deflation. Joseph Lupton, Global Economist at JP Morgan, believes that "A powerful disinflationary tide is now rising," and a widespread deflationary price decline can be harmful to the whole economy.

While in the east, the inflation story is still mumbling as the COVID confirm cases has been gradually slowing down, especially in China. Data shows that consumer inflation moderated in China last month. However, as the lockdown disrupted many supply chains, the situation may cause food prices to surge, just like in early February.

It may be too early to conclude which scenario India will fall into, but India is no stranger to over stimulus. In 2009, the Indian government announced a massive stimulus plan due to the impact of the global financial crisis. However, many considered the package was overly excessive, resulted in a prolonged period of high inflation.

Overall, extreme price fluctuations in either way could be challenging, especially for long-term investors; this is where bitcoin comes in. With a finite supply and its counter-inflation nature, long-term investors could easily find these bitcoin's store of value features attractive compared to other assets.


3. Lower interest rates, higher money supply

Interest rates could be another reason why investors should consider a crypto inclusion. The RBI slashed the benchmark repo rate by 75 basis points to 4.4% in the March MPC meeting. The slowed economic activities primarily drove the massive rate cut due to COVID-19 related lockdowns.

While 4.4% may still look decent compared to central banks like BOJ and SNB, their benchmark rates were already negative. Markets may soon to see the RBI cut their key rates even more aggressively. Fitch Solutions expects the RBI may lower the repo rate by another 100 basis points by early 2021, as part of the measure to tackle the COVID-19 economy.

Figure 3: India Interest Rate and Money Supply M2(Source: Tradingeconomics.com)


At the time that the trend of the RBI policy rates is heading lower, the Indian central bank seems not to hesitate when it comes to turning on their money printing machines. The country's money supply M2 has been increasing since 2017, and its rate has gone even higher in recent months.

With the COVID background, the interest rates will probably stay at ultra-low levels if not go even lower. That could be challenging for long-term investors, especially those who focus on bonds and fixed income. Although there were still alternatives among traditional asset classes, bitcoin and cryptocurrency may also be an ideal option.


4. Lockdown drives higher crypto interest

The nationwide lockdown may have slowed down the economy. However, it may also create more time for Indian investors to study about cryptocurrency.

In an interview, Nischal Shetty, CEO of cryptocurrency exchange Wazirx, said, "The extended lockdown has led to people showing even greater interest in crypto in India. With millions of people not having the opportunity to work due to lockdown, crypto is turning out to be an opportunity for Indians to trade and earn from it."

The fact that Shetty's comment seems in-line with local C2C crypto trading numbers. Data from Coindance shows that the weekly trade volume on Localbitcoins has been steadily rising since February 2020, with around INR 100 mln worth of BTC has been changed hand via C2C platform.

Figure 4: Weekly Localbitcoins Volume (INR) (Source: Coindance)

Weekly localbitcoins

Although the number may not look highly significant at this point, however, as the fifth-largest economy in the world and accounted for 17% of the world's population, we believe there was tremendous growth potential for crypto in India.


5. Increased regulation clarity, but need more

Regulatory concerns could be one of the most influential factors for investors to get into the crypto space. In early March, the Supreme Court of India has handed down a decision saying the ban on cryptocurrency trading using banking services in the country "unconstitutional."

With the clearing of the first hurdle, the crypto industry in India urged the regulators to provide additional guidelines and clarity for their local operations.

A report from Global Legal Insights suggests that regulatory bodies could explore the possibility of acceptance of certain cryptocurrencies could constitute a deposit or security. The RBI has been studying launching a blockchain-backed digital currency despite its doubt with cryptocurrency. We believe that regulatory bodies could soon provide more insight in terms of the positioning cryptocurrency in the financial system, as well as a framework for industry participants.



The macroeconomic landscape seems favorable for Indian investors to consider a crypto inclusion in its investment portfolio, while data also shows that crypto interest in India has been rising. OKEx is set to launch its P2P crypto trading platform in India to provide an all-in-one solution for investors to trade crypto via its fast and secure network infrastructures. Moreover, OKEx will also be launching a brand-new OTC desk in India, dedicated to facilitating large block trades with tailormade solutions. Stay tuned for the announcement.

This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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