Not too long ago, Indian venture capitalists were rushing to establish their presence in the crypto realm. X profiles were adorned with Ethereum wallet addresses, and over a dozen VC firms were eager to showcase their web3 investment theses. Some even relaxed their stringent hiring criteria to bring in young analysts well-versed in crypto.
Eager not to miss out on potential game-changing deals, young partners convinced higher-ups to invest in early-stage crypto startups at valuations ranging from a frothy $30-100 million. The belief was that crypto was on the brink of significant growth, and they aimed to discover the next Flipkart or PhonePe in the rapidly expanding world of digital assets. Pitch meetings were flooded with concepts for the 200th crypto exchange or the 33rd NFT marketplace of the month.
The enthusiasm was understandable. Crypto was a global sensation, and India’s tech scene was booming. Major U.S. investors predicted India’s GDP doubling by 2030, and Indian startups had already secured over $100 billion in the past decade. Consequently, global crypto VC funds poured into India, hoping to replicate the successes of Accel, Sequoia, and Lightspeed from a decade ago.
As crypto gained mainstream attention, it seemed like the logical next step. Bullish reports suggested India had over 100 million crypto participants, even though the actual involvement in investment instruments was significantly fewer. Hackathons attracted numerous young engineers, selling visions of lucrative paydays and a once-in-a-lifetime chance to reshape financial markets and the internet.
Then, the tide abruptly turned.
Cryptocurrency prices, once thought to be “heading to the moon,” reversed course towards the center of the earth. Ethereum wallet addresses disappeared from Twitter bios, and firms abandoned half-finished crypto thought pieces. Partners shifted their focus to other sectors, reassigning analysts away from digital assets.
However, in India, the problem wasn’t just declining prices. Equally challenging was the restrictive regulation imposed by the central bank, the Reserve Bank of India, which had long been opposed to cryptocurrencies. Despite a previous blanket ban being overturned in court, regulators continued to equate crypto with Ponzi schemes and pressured banks to stay away from any dealings with crypto startups.
This banking restriction, coupled with limited crypto adoption, made fiat currency onboarding exceptionally difficult. Coinbase, for instance, faced challenges after its CEO Brian Armstrong launched in India in 2022, only to suspend trading days later when the RBI refused compatibility with the crucial UPI payments network.
New restrictive policies, such as a 30% tax on crypto transfers and a mandatory 1% TDS on virtual asset purchases, further dampened trading volumes. After processing over $43 billion in 2021, Indian exchange WazirX’s volumes plummeted to $1 billion last year.
When asked about the U.S. SEC’s approval of spot bitcoin ETFs from BlackRock, Fidelity, Invesco, Franklin, and others, RBI Governor Shaktikanta Das made it clear that the Indian regulator’s stance on cryptocurrencies remains unchanged. He emphasized the concern that crypto lacks any underlying value and warned of significant risks down the path of crypto adoption for both emerging and advanced economies.
Apple’s decision to delist a dozen global crypto apps, relied upon by significant traders in India, dealt a final blow, capping off a challenging two years. The pending removal across Google Play, internet providers, and beyond marks the end of a journey filled with shutdowns, pivots, and relocations abroad for Indian crypto startups. The web3 dreams of local entrepreneurs now seem shattered against the rocky shores of regulatory resistance.
While some entrepreneurs continue to fight for the Indian crypto dream, urging New Delhi to reconsider the hefty 30% crypto tax, the signs are clear. Lawmakers are solidifying their stance: while the crypto community may be hoping for “WAGMI” (We’re All Gonna Make It), India believes the space is “NGMI” (Not Gonna Make It).
