India’s April-June quarter GDP contracted by nearly a quarter, the biggest crash in over 40 years. The Indian economy came to a standstill when consumer spending, investments, exports and other sectors of the economy collapsed during the world’s strictest lockdown which began on March 25, 2020. Data released by the Indian government showed the extent of the collapse in GDP in the three months ending in June, with the construction, manufacturing and transport industries among the hardest hit.
Once known to be the world’s fastest-growing major economy, India’s GDP contracted by 23.9% during the COVID-19 hit quarter of the current fiscal year (FY). India’s decline in the first quarter of the current fiscal year is one of the worst among the major economies in the world. This decline was the sharpest since the quarterly figures started getting published in 1996 and worse than what was expected by most analysts.
Among the major economies that were hit, only China recorded a 3.2% increase in GDP for the quarter. China recorded a contraction of around 7% during the last quarter of the previous fiscal year when the virus hit the country. The worst-hit economy in this FY is that of the US with a fall in 32.9%, followed by India.
Source: India Today
Though the lockdown has been eased and businesses have started functioning at less than full capacity, the increasing number of COVID-19 infections in India could delay the economy from fully reopening. If the GDP falls again in the current quarter (July-September), then India will technically enter a recession. A recession is an economic state characterized by two consecutive quarters of fall in GDP. India was in a recession last in 1979 when the GDP fell by 5.2%. India’s April-July fiscal deficit has also crossed the full-year budget target. While construction, manufacturing and hospitality industries have been hit the most, it is only agriculture that was on the green side.
Before the beginning of the lockdown on March 25, 2020, the Supreme Court, on March 4, 2020, overturned all curbs imposed by the Reserve Bank of India on banks associated cryptocurrency companies and exchanges. Let us take a look at how the crypto space in India has evolved over the April-June quarter of 2020.
The Crypto Boom
While India was under a nationwide lockdown, the removal of all curbs on the banks associated with cryptocurrency exchanges made a huge impact among crypto traders. Sumit Gupta, the CEO of CoinDCX, was quoted saying that CoinDCX witnessed a 10 times growth in the first week after the Supreme Court lifted the RBI ban. This rate of growth was consistent as more and more signups took place on a regular basis during the lockdown. While CoinDCX’s product Insta has shown a 38% MoM in growth since its inception in 2018, Sumit Gupta said that Insta witnessed a 62% MoM growth after the Supreme Court verdict.
Ranked as one of the leading cryptocurrency exchanges in India, CoinDCX alone saw a 47% growth in trading volumes in the first quarter. Cryptocurrency trading in India saw a 400% jump during the lockdown. While on one side people were losing their jobs, the crypto market emerged to be an additional source of income for many in the rural and urban areas.
By the end of the FY, Foreign investors went on a selling spree and pulled out $6.4 billion from the Indian equity markets largely due to the COVID-19 outbreak and they turned risk-averse. The entire crypto market is relatively small as compared to the Indian equity market. Irrespective of the risk-averse behaviour shown by a lot of investors, global decentralized cryptocurrency exchange Binance Group set up a $50 million (Rs 370 crore) blockchain technology fund for India. Meanwhile, CoinDCX too secured funding from several Venture Capitalists including Bain Capital, Polychain Capital, Bain Capital Ventures and HDR Group, operator of BitMEX. This shows the faith that investors had in the growth of the crypto market in India.
The instability of the Indian rupee also meant that more people were trying to hedge their risks. Trading volumes on peer-to-peer (P2P) cryptocurrency platforms like Localbitcoins and Paxful were seen to grow significantly. Many Indians convert their INR to bitcoin and then to U.S. dollars using these two platforms. The graph below clearly shows that trading volume on Paxful’s platform increased while that of LocalBitcoins almost remained the same.
Despite the economic crisis, Paxful saw a rise of 883% in its Bitcoin trading volume for the January-May period as compared to the same period last year. Other global cryptocurrency exchanges like OKEx said that newly registered users from India rose 4100% during the same period.
Not only have trading volumes increased during the lockdown, but there was also an increase in the usage of decentralized apps during the lockdown too. One of the reasons, as claimed by Matic Network co-founder Sandeep Naliwal was that people could play games and earn money out of it. This encouraged many people to enter the blockchain space and explore it. While some did their first trades during this lockdown, many started exploring the different use cases of blockchain technology. To help people learn about this new technology, CoinDCX also launched its academy, DCX Learn, where educational materials related to blockchain technology are available for free.
Read this article to learn more about what other stakeholders in the blockchain community had to say about their bet on the explosive growth of blockchain in India.
To conclude, the Indian cryptocurrency market is set to see a significant rise in its market share. This could be due to the regulatory environment around cryptocurrencies, the instability of the rupee, the loss in faith of investors in the Indian equity market and the importance of cross border remittances.
India is one of the world’s biggest recipients of money transfers and using cryptocurrencies to transfer funds would save us millions of dollars annually. We must therefore look forward to an active crypto economy that will enable the small players in the market to benefit from digitization, make the financial system more secure and transparent and have cheaper and efficient ways to send and receive money across the border. This lockdown proved useful to all those who wanted to learn more about Blockchain Technology. It helped reignite the entrepreneurial wave amongst the millennials and create new job opportunities for many in the blockchain space. The quashing of the ban imposed by RBI, the faith is shown by various investors on the Indian crypto market and the various products launched by crypto exchanges and firms dealing with blockchain technology helped in improving the understanding and knowledge among people.