Whether you believe in cryptocurrencies or not, the asset class has gained a lot of traction and acceptability among market participants. India is now becoming one of the biggest trading hubs of cryptos and things will only get bigger once domestic policymakers lay out a clear regulatory framework for this space.
Like equities, investors in the crypto space must understand what they are buying into and what value/utility proposition the digital tokens hold in the long term.
Below are excerpts of an exclusive interview with Rahul Raj, Co-founder and CEO of Koinex, India’s leading cryptocurrency exchange which is a must read for all crypto enthusiasts and traders based in India.
We have to start off by asking your thoughts on what the Finance Minister said about cryptocurrencies in his Budget Speech….Do you think he has killed India’s cryptocurrency party?
The Finance Minister’s comments in the Budget Speech was leaning towards the need for cryptocurrency regulation in India for the digital currency ecosystem, rather than a complete ban. This was also corroborated by the Cabinet Secretary of Economic Affairs, Mr. Subhash Garg in his statement about India hoping to roll out a governing regulatory framework before the end of this fiscal year. The government in fact has replaced the idiom cryptocurrency with crypto-assets, referring to possibly treating it as a commodity under SEBI guidelines. The government is focused on mitigating all possible illegal financing activities which could revolve around bitcoin and we are in unison with the government on this thought. It is important to build a robust and comprehensive framework to regulate this space.
As Jaitley stated, India wants to promote the use of blockchain technology but reaffirmed their negative view on crypto-assets. Do you feel, like many in the crypto universe, that thinking of blockchain independently of cryptocurrency transactions is redundant at the moment?
Blockchain technology is obviously a huge technological breakthrough and is evolving every day. If you see the concept of how blockchain functions, it is by design, applicable across sectors that use recording and updating of data. So the applications of transactional nature will always be one of the foremost users of this technology and so we do see crypto-assets as being an integral part of the blockchain universe. However, the technology will also find relevance in various other industries including advertising, retail and social media and other government sectors like property office, electorate office judiciary system etc.
Many Indian residents are trading on your exchange currently. On some days, volumes in Ripple are the 20th largest globally according to coinmarketcap.com on Koinex. What makes you bullish about the future?
As per industry sleuths, in the last 18-24 months, $3.5 bn of trade volumes have been recorded in India. India accounts for over 10% of the global bitcoin trading volumes. With the conversations regarding the regulatory roadmap going forward, we are optimistic about the market and find a scalable business opportunity as a lot more participation is expected on the retail front.
While registering on Koinex, there is a thorough KYC process. The withdrawal and deposit system on your site is also very smooth and customer-friendly. What challenges do you see going ahead especially with respect to your payment partners?
We were the first open book peer–to–peer cryptocurrency exchange to be launched in August, 2017. We were also the first to deploy a thorough KYC system and integrate that into our platform and registration process. We need users to upload their PAN details, Aadhaar details, and their picture (which is verified using image mapping). Our payment systems were running smoothly, but we did face few hiccups in the light of the recent apprehensions from the government. But we hope that when there is clarity in regards to cryptocurrency regulation and compliance and the policymakers layout a clear regulatory framework, the financial institutions will be open to partner with us. In terms of what more can be done, there can be a multi-tiered KYC process where we can categorize users in different groups such as HNI’s, high traders or politically exposed individual. We have also launched our Koinex app to help users trade on the go.
In your interaction with the government, do you see a good level of coordination between say the IT department, the RBI and the Finance Ministry when it comes to formulation of policy?
Absolutely. A committee was formed in December which includes members from all of the above. We are sure that all stakeholders will be involved after this committee releases its report on the cryptocurrency landscape in India with its suggestions. We believe there will be a democratic process and there will be a public & industry opinion on the framework such that every stakeholder’s interests are best represented.
The most iconic exchange in the world has launched Bitcoin futures in Chicago. Ethereum Exchange Traded Notes are being traded by institutional money on the Stockholm NASDAQ. Do you see crypto futures being traded in India?
Crypto-assets are still in their nascent stage in India and so it will be some time before we match up with the regulated markets. These are derivative products which need even more regulation. Derivative products are one step further than trading the asset itself.
Can you please briefly describe for the traders on your platform what security measures you have put in place to avoid a large scale hack going forward?
Just as technology is evolving, the hackers and their techniques are also evolving. They are also constantly looking at counter attacks against our security measures. Most exchanges store their crypto pool offline in hardware wallets and it is not connected to the internet and hence is safe. We also administer traditional web layer security & blockchain security which armours the system from perils of session hijackings, SQL injections and DDoS attacks. We also have complete monitoring of all events and activities on the platform along with full record of this on a minute level.
Koinex is the first multi-currency exchange with an open-book ledger format, in the country and within a short time the company grew to be one of the largest trading portal by volume, in the country. One of the key reason for their success is the cutting-edge technology, proprietary trading engine, wallet and platform architectures, grade A security, user-centric UI/UX and tons of user-demanded features that makes it seamless for the users.
Do you plan on introducing more products such as alt coins going forward?
Yes, we always are looking at enhancing our product offerings on the platform but these launches are strategic. A lot of due diligence is being done behind which new products to launch. We have an internal robust framework of many evaluation parameters to determine the relevance of the product in the market. The parameters include factors like details of the parent company, the tech platform, acceptance, market cap, volumes and investor backing, etc. Once the coin manages to score satisfactory results on these parameters we consider it for a launch on our exchange. This diligence also helps to weed out possible Ponzi coins and the ones which might benefit our customers in the long run.
What are your thoughts on investor education? Do you plan to put up educational videos and regular analysis of market trends in the crypto space for your customers going forward?
We encourage users to take a long-term view on what they buy. We have a lot of content which will help readers to understand the nuances of crypto-assets and blockchain technology. Our focus is to build awareness and debunk myths about crypto. However please note here that we do not share market intelligence or provide any buy or sell recommendations.
When do you the market will be mature enough to take fiat ie. the Indian Rupee out of the picture. Do you believe if you offer XRP/BTC, there will still be substantial demand?
Crypto to crypto exchanges exist in overseas market and this is something we will like to introduce as our users mature and the market gets bigger.
Another question when it comes to efficient pricing (obviously liquidity has a lot to do with this) is what are your thoughts about the arbitrage opportunities that exist between domestic exchanges (like say BTC Zebpay & Koinex) as well as the price differential that exists between international markets and India.
Every exchange is a local market and thus illiquidity can lead to different prices. Arbitrage opportunities do exist. We want to make it clear that all the bids and asks you see in the publicly available order book are our users and we do not do any market making or proprietary trading. The pricing mechanism is efficient and driven only by supply and demand dynamics. On the point about the premium of domestic crypto prices over the international USD price, we can again attribute that to strong demand for these assets.
The stance in the crypto universe seems too binary: either people are for it or massively against it. What is your long term structural view in this space?
Every new disruptive technology or innovation always faces a strong opposition because as a society we are averse to change. Technology will always be a step ahead because innovation comes first, followed by regulation. But like all other transformational technology, be it World Wide Web or artificial intelligence, even blockchain technology will bring a paradigm shift in our ecosystem. It is here to stay. Blockchain technology offers a transparent, secure and efficient peer to peer value transaction proposition which is a force to reckon with and will eventually attain mainstream acceptance.