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What makes India such a formidable crypto use case

Earlier this month, venture capital firm Andreessen Horowitz (a16z), early investors in Airbnb, Skype, Github, and more, invested over a quarter of a billion dollars in a two-year-old cryptocurrency exchange. The exchange, CoinSwitch Kuber (Coinswitch), India’s fastest growing exchange, was the first investment of the famed VC firm in the Indian market. 

VC firms like Sequoia, Tiger, and Accel, have several investments in Indian fintech, ed-tech, and healthtech companies. Why was a crypto exchange the first to turn a16Z’s heads? We think it’s not just because of the power of crypto, but because of the power of the Indian market. 

A mix of people, technology adoption, and changing financial behavior is attracting American VC firms and Chinese VC firms like Sino Global Capital.

Let’s unpack why India will be a focal point in the cryptocurrency market very soon.

People phones and payments

A long-held claim for India’s ascendance is the country’s rising young population. India has 1.4 billion people, that’s 3.5 times the population of the United States. What’s even more astounding is 34% or nearly 500 million people are between 18 to 24 years. This is more than any other country’s youth population, even China’s. India’s young population is growing at a faster pace than any other country in the world.

A youthful population is nothing if it does not add to a country’s value. And India’s youth is through a booming period with the rise of the internet. India’s internet is the cheapest compared to countries like China, the US, Australia, the UK, France, Brazil, among others.

The cheap cost of the internet is due to the competitive nature of the Indian telecommunications market. In September 2016, Asia’s richest man and the 10th richest person in the world, Mukesh Ambani, the Chairman of Reliance Industries entered the telecom market. 

Reliance Industries, valued at nearly $240 billion, is the largest listed company in India having businesses in oil and gas, supermarket, chemicals, and pharmaceuticals. Ambani’s telecommunication’s foray, Jio Infocomm (Jio), signed up 100 million customers in six months with its low rates. Five years into its telecommunications stint, it’s the largest internet enabler in the country.

Jio’s price undercutting technique drastically lowered the cost of using the internet in India. In 2021, the average revenue per user (ARPU), a metric used to track telecom companies’ mobile data and carrier service revenue is around Rs 140 ($1.8), a 29% fall from 2016’s ARPU of Rs 196 ($2.6). To put it simply, the cost to use a phone in India for a month is less than the cost of a Big Mac.

An internet connection is unusable without a smartphone. And boy does India have cheap smartphones. In the past decade, the Indian market has seen a surge in smartphone sales from Chinese smartphone makers like Oppo, RedMi, Vivo, and more. This drastically reduced the average price per smartphone (adjusted for inflation). In 2020, the average selling price of a smartphone in India was Rs 11,700 ($156), a 38% fall from the average selling price in 2011, Rs 19,000 ($254).

Falling prices of the internet and smartphones coincided with India’s push for electronic payments. In April 2016, India launched the Unified Payments Interface (UPI) a multi-application enabled payment gateway system linked directly to bank accounts. The UPI system was initially used through Google’s Pay, Alibaba-backed Paytm, and Walmart-owned PhonePe. Eventually, other companies launched payment gateways like Amazon Pay, India’s telecommunication giant Bharti Airtel’s Airtel Payments Bank, and more recently Facebook’s WhatsApp Pay, piggybacking on the UPI network. 

A few months after UPI launched it was given a big boost. In November 2016, the Indian government de-monetized the country’s Rs 500 ($6.6) and Rs 1,000 ($13.3) banknotes overnight. This meant that 24% of the country’s physical currency in circulation was declared void. While the controversial move was meant to target money launderers, it proved a boon to India’s electronic payments industry.

In July 2016, transactions on the UPI were less than Rs 40 lakh ($53,200). In September 2021, the UPI accounted for 3 billion transactions worth Rs 6.5 lakh crore ($87 billion), that’s a compounded annual growth rate of 625% in five years. India’s payment infrastructure is the biggest in the world, bigger than China, and the US.

These three reasons — a young population, cheap internet, and smartphones undoubtedly resulted in the growth of India’s payment infrastructure. And then Covid-19 happened, which only accelerated the growth.

Online frenzy shakes the crypto market

The Indian markets dropped to their lowest level since the 2008 financial crash in March 2020 due to Covid-19. As markets remained low for much of the first half of 2020 India went into a national lockdown. This was, at the time, “the biggest and most severe action undertaken anywhere to stop the spread of the coronavirus,” according to the New York Times.

With people indoors and markets at record lows, the traffic on brokerages and cryptocurrency exchanges skyrocketed. This was accompanied by a collective spike in all forms of digital marketplaces, from food delivery apps to gaming platforms. The youthful, internet-enabled, and bored population caught the online frenzy.

Zerodha, a completely bootstrapped zero-brokerage service, referred to as India’s Robinhood saw a staggering rise in users since the pandemic began. In FY21 (April 2020 to March 2021), the brokerage doubled its user base to 6.6 million users from 3.1 million users in FY20 (April 2019 to March 2020). Since March 2021, the brokerage added over 2 million users. This is a staggering number considering from FY14-19 the brokerage’s added less than 1 million users.

What’s even more shocking in India is the growth of crypto users. With 8 million users (as of September 2021), Zerodha is India’s largest brokerage (15% of total volume), but the two leading cryptocurrency exchanges are far ahead. Binance backed WazirX’s userbase stands at 8.5 million while Coinswitch’s userbase is a mammoth 11 million. In comparison, Coinbase has 56 million users. This number is even more astounding considering before March 2020, users could not link their bank accounts to cryptocurrency exchange wallets. 

Even the founder of Zerodha, Nitin Kamath, acknowledged the growth of crypto exchanges is a potential threat to brokerages. He tweeted, “Crypto is what has recently disrupted brokers & exchanges in the US…While Crypto is still small in India, we’re in a similar situation as the US, a few years back. The regulatory fear doesn’t allow regulated platforms to offer Crypto. Eventually, if the status quo on regulations continues, traders can move away & disrupt the broking industry.”

India’s crypto user base is far ahead of developing and developed countries. A survey by BrokerChoose said India has over 100 million cryptocurrency owners, which is 30% of the US population. In comparison, the US has 27 million cryptocurrency owners. However, as a percentage of the total population, only 7.3% of Indians own crypto compared to 8.3% of Americans.

Social media excitement

With infrastructure and volume, the foundation for India’s crypto was built. The only thing lacking was a driving force. Exchanges offer a marketplace. The internet and smartphones provide cheap and easy-to-use entry points. But what’s required was the power of personality. A few reliable and influential personalities (or influencers) creating interest in the cryptocurrency industry. And over the past few months, India got that. That’s when the tide began to turn.

In February 2021, Tanmay Bhat a comedian and social media influencer with over 3.4 million subscribers started talking about cryptocurrencies. He started with Bitcoin and Ethereum, but soon delved into other niche topics like Solana, DAOs, and more. This brought in a score of young and savvy Indians into the cryptocurrency space. The influencer storm didn’t stop there. Two months later, Bhat and BD joined hands with Akshay BD from Solana, to start SuperPumped (later changed to Superteam), a DAO to accelerate the growth of Solana projects in India, South East Asia, Eastern Europe, and Africa. No wonder, in May 2021, when Bitcoin and Ethereum dropped from record highs, and Dogecoin surged, Google searches for the three cryptocurrencies spiked.

Bhat and BD are increasing the reach of Superteam by recruiting other members from India’s influencer space to help the community learn, the developers expand, and the creators grow. Just last week, when Sino Global Capital CEO Mathew Graham mentioned the possibility of setting up an Indian office, Superteam mobilized his message to Bhat’s over 6 million Twitter followers.

Superteam is by no means the only influential engine for crypto in India. Several Indian entrepreneurs, movie stars, and social media personalities are increasing awareness of India’s growing crypto environment. This is bringing in a whole new crowd to crypto, and they are not coming from the equity market. These are people who have never invested in any asset apart from a bank’s fixed deposit. For instance, Coinswtich with over 11 million users, and over 75% of them do not own an asset apart from crypto. 

Community and infrastructure will bring the people in. What’s required to actually drive the growth of cryptocurrency, beyond mere trading and volume, is education. That’s the next leg of growth that crypto companies are targeting.

Brain drain replaced with building for India

A final evident feature of this change in the Indian landscape is seen in educated Indians. No longer is getting a job in a western country like the US a priority. With opportunities present domestically, many Indians are either staying back or returning to build products at home.

This shift in brain drain from India to the US did not happen overnight, but it took over a decade. Earlier, gifted Indians after their undergraduate studies would complete their post graduate studies or doctoral programs in the US. Many would settle there taking higher up technical or management roles, others would become top executives in their respective organizations. Indra Nooyi (Former CEO of Pepsico), Arvind Krishna (CEO of IBM), Satya Nadella (CEO of Microsoft), and Sundar Pichai (CEO of Alphabet) are examples of this.

In the past decade, there was a shift. Many Indians after working for western companies, either domestically or abroad, left their jobs to build for the Indian audience. This was the foundation for the next generation of Indian companies. Examples are plenty in the modern Indian startup ecosystem – Sachin Bansal (ex-Amazon, started Flipkart), Bhavish Aggarwal (ex-Microsoft, started Ola), Vaibhav Gupta (ex-Mckinsey, started Udaan). 

Most Indian startups currently have alumni of the American startup ecosystem, but the same theme remains – these young Indians realized they have to build for the Indian audience, because of its potential. That’s precisely why the venture capital money in India is flowing thick and fast. In 2021 alone, 32 Indian companies turned into unicorns (a valuation of over $1 billion), compared to just 38 unicorns between 2011 to 2020.

No longer will the United States or any other western country be the beneficiaries of the brain drain of Indian talent. These talented people will now build for the Indian audience, and it’s not just the affluent audience living in big cities either. Many Indian startups are building for the folks in rural areas in niche but high-volume spaces like ledger management, payroll systems, crop tracking, small business loans, and more.

All of this is possible because of a combination of factors. Technological factors like access to cheap internet, smartphones, and payment services. A frenzy to use online investment platforms. The community building by social media influencers. And finally, the stoppage of brain drain, causing Indian founders to build for India. These factors are playing out in India right when the crypto market is bursting into the mainstream with a Bitcoin ETF likely to be approved, major investments in DeFi, and celebrities launching NFTs.

The Indian market is ripe for the growth of cryptocurrency. And here, the true use case of decentralized currencies will be realized.

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