How 2022 changed India’s crypto ecosystem

“From an investment perspective, valuations have corrected a lot,” Parth Chaturvedi, head of crypto ecosystem at CoinSwitch Kuber, told BQ Prime. Chaturvedi leads the CoinSwitch cryptocurrency fund, which invests in crypto startups and helps them access other investors.

In the exuberance of January and February, fundraisers were held against concept papers that lacked even a minimal viable product, but that has changed dramatically since then, he said. While venture capital firms have invested a lot of capital — over $500 million by one venture investor’s estimate — in Indian cryptocurrency and blockchain firms during 2022, they have been tightening their purse strings since July.

“Everyone has changed priorities. Or they want to invest in middleware or infrastructure. No one will touch the metaverses,” Saumya Saxena, co-founder of a crypto payments startup, told BQ Prime. She founded the firm after finishing a residency with venture capital firm Antler.

Implementing compliance and governance using decentralized blockchains and using those ledgers to verify news information are among the use cases for cryptocurrencies that Saxena feels personally optimistic about. But they’re both long shots and will likely take years to materialize, he said she. His current company is focused on resolving friction in cross-border payments.

It’s hard to underestimate the knock-on effect of the FTX crash on the cryptocurrency industry. Allegations that senior management at the world’s second-largest cryptocurrency exchange intentionally diverted client funds for their own use will no doubt make retail investors wary and regulators more skeptical.

The unbridled hype and excitement of early 2022 has already given way to a darker mood as the year draws to a close. But the crypto-loyal aren’t losing hope just yet.

While the current tax regime is widely seen as one of the biggest downsides for cryptocurrencies in India, cryptocurrency taxation platform KoinX occupies an odd middle ground. While people who pay taxes on cryptocurrencies help them earn revenue, this has resulted in such low volumes that KoinX’s revenue base has shrunk.

“Exchanges going bust or people not paying taxes make no sense to us,” Punit Agarwal, the founder of KoinX, told BQ Prime. Despite dwindling trading volumes, KoinX continues to expand its operations and Agarwal indicated that while the tax environment is prohibitive in India, he plans to expand the company overseas to countries like Turkey.

Even those like Saxena, who left a role at a non-bank finance company to build a cryptocurrency firm in December 2021, remain invested in the promise of the technology. The sentiment around the cryptocurrency sector may have changed, but the momentum in product construction has remained the same, Saxena said. “A bunch of builders went from one hype cycle (crypto) to the next (artificial intelligence), which is normal,” she said.

While industry entrepreneurs are expressing a hopeful note as they look to the future, retail investors are less enthusiastic about it. “I am part of the cultural experiment of losing money on cryptocurrencies,” Tony Sebastian, a retail cryptocurrency investor, told BQ Prime.

For his part, Kohli said he is not yet cashing out his cryptocurrency holdings. “It’s diamond hands now,” she said. “I’ll watch [the portfolio] when I’m 10-15 years older.” Diamond hands are investing jargon to keep an asset even when there is market pressure to sell.

But at the same time, a contempt for supposed decentralization seems to have crept in.

“At the end of the day, no matter how hard you try to decentralize things, money just moves from one set of rich white men to another set of rich white men,” he said. Retail investors “don’t stand a chance against the big sharks,” she said. “At that point, it’s like a struggle between hope and reality.”

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