By Srivatsa Krishna
In 2010, Laszlo Hanyecz bought two pizzas—costing $25—with 10,000 bitcoins (BTC). At the time, going by the cost of those pizzas, one BTC was worth $0.0025. By 2019, BTC’s value rose to $15,000. What began less than a decade ago with the sale of two pizzas could exceed $3.1 trillion by 2030. In just ten years, the value of all the cryptocurrency in the world is $1 trillion (up from zero in 2010) or nearly a third of India’s GDP! Compared to gold, which is about $13-14 trillion outstanding globally, and the US stock market, which is around 45% of the global market value of around $100 trillion, BTC is still tiny; yet, it has caused such a hue and cry.
India must not ban cryptocurrency; instead, it should embrace it. It must treat it as a digital asset and a portable store of wealth, not as a liability or a risk, or even as a competing currency—which it is certainly not. Banning crypto is pretty much impossible. It is akin to saying, let’s ban the internet. Even if India wants to do so, it can’t for various technical and political reasons. In fact, one could go a step further and argue that the government doesn’t fully understand the potential and the huge opportunity that crypto offers, and thus might prefer to take the safer route of banning it, citing national security. It is a bit like saying terrorists may also be using geospatial data based digital map services, so let us ban the technology altogether. Crypto can indeed be used for money-laundering, as can Google maps for planting bombs—so regulate it, don’t ban.
India must seize the opportunity and create a digital rupee and back it with the 600-700 tons of gold lying idle with the Reserve Bank of India (RBI). World Bank, IMF, etc. Pioneering techpreneurs like Elon Musk have endorsed crypto at one time or the other. Banning is a knee-jerk reaction and will drive sellers (India has about 7-8 million crypto-owners, holding over $1 billion) to find grey or offshore markets to transact. Also, bear in mind there is no such thing as a ‘private’ crypto, for all are based on public, open-source blockchain technology.
Indeed, the foundations of an Atmanirbhar Bharat can well be strengthened with a first-ever gold-backed digital currency in the world, and PM Narendra Modi should consider this as his legacy to the world. It reminds me of the old song Money For Nothing since BTC has almost nothing backing it. India must act now or lose out permanently on a significant wealth creation opportunity for its citizens. Crypto could well be one of those few things in the world that brings a billion people together, and India could take the global leadership in doing so if it creates smart regulation, not the ones drawn from the Defence of India Act, 1858, like many of our current major laws are!
Let us start with a rough, not necessarily exact, analogy. If the global technology giants, at some point, decide to ‘ban’ India—like Facebook blocked all news in Australia—India would not have much recourse, except the argument that the compaies are losing a valuable market. Jack Dorsey, selected by a few shareholders, shut down president Donald Trump, democratically elected by millions of people! Now imagine a scenario if any of the reserve currencies decide to block India—I know it’s far-fetched, but then so was the Covid-19 last year—then crypto could be a saviour. BTC cannot be shut down by any state or government and remains a strong, last-resort bulwark in the event of any war. Let us not forget SWIFT, Google Pay, PayPal, Alipay, SPFS, CIPS, etc, are all controlled by the US, Russia, and China, and are subject to exclusion risks. Can India then afford to stay away from participating in the global BTC race?
The US vs China contests will likely not end for the next 20-30 years, and each will try to attain supremacy in a zero-sum game. These are inherently unpredictable and often binary plays, often to the advantage of the primary players but the disadvantage of countries like India. And the clash will recur in multiple theatres like trade and currency wars. India must take a different route to position itself as the creator and leader of a neutral platform—one where a neutral, international digital currency— crypto open-source—becomes the accepted global medium of exchange.
This may be a few years away, but well within the realm of imagination. The supply of BTCs is known and finite, and its value depends on estimating the demand for it, though one cannot rule out new digital currencies coming along.
If RBI chooses to be visionary rather than insular and knee-jerk, it should consider BTC akin to a reserve and engage in buying about $5bn worth of it. India’s total budget size is about $500 billion, and this is a small drop in the ocean in comparison. This could, even with even just a 10X appreciation in its price, overtake India’s gold reserves in value (the CAGR of BTC value has been close to 200%!) and this itself could save India billions of valuable dollars. Even before the proposed Act of Parliament to regulate cryptocurrency, RBI, through a single action, can protect India’s future generations by hoarding an extremely strategic reserve.
BTC is similar to gold in the sense that it cannot be devalued by any central bank printing more money supply (nor can it be used for many day-to-day transactions as a medium of exchange) for it has a hard-coded total supply of 21 million in all. Currently, its supply rate is less than that of gold. Further, 90% of BTCs in the world have already been mined.
Further, India is one of the largest players in the global remittances market, which is today at $600 billion (of which $80 billion are remittances to India), and much of the value is creamed off by Western Union and others for very little value addition. BTC will completely disrupt this market along with peer-to-peer digital transactions.
There is an entire crypto-economy out there for our taking, with billions of dollars of investments and job, very similar to the internet economy that India joined a decade or so ago to create world-class entrepreneurs. Why can’t the proposed International Financial Center (IFC) at GIFT in Gujarat benefit from a progressive, proactive crypto policy that can attract both capital and jobs? Even if the government is cautious about opening up the whole country to crypto, why not have an enclave with special dispensations, say, for a micro crypto investment cluster inside the IFC, and see how the experiment goes?
Full disclosure: At the time of writing, I have no investments in BTC companies or in BTC itself, just in case, some cynic thinks of this to be a plug!
Author is an IAS officer. Tweets @srivatsakrishna. Views are personal