Mass exit can erode Indian cryptocurrency investors’ wealth: Sumit Gupta, CoinDCX – Mint

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A proposed ban on private cryptocurrencies has threatened to quash India’s nascent cryptocurrency industry and affect investors who have already placed their money in virtual currencies. Mint spoke to Sumit Gupta, founder, CoinDCX, one of the country’s largest cryptocurrency exchanges on his background and views on the road ahead for cryptocurrency in India.

Can you tell me a bit about your background?

I was born and raised near Shivpuri in Madhya Pradhesh. In my initial years, I went to a Hindi medium school. Later on, I went to Kota to study for IIT coaching and got into IIT Bombay for electrical engineering in 2009. I used to love Maths. I met by co-founder Neeraj Khandelwal at Kota. One of our courses in IIT Bombay was cryptography.

Cryptography is important part of cyber security and is used my experts in that field. I got a pre placement offer from Sony and went to Japan in 2014. I even learned Japanese before going there. During my time in Japan, I used to get emails about job offers in the crypto field. I did not really understand the technology at that time and so I didn’t even invest in cryptocurrency back then. I wish I had done so, I would’ve been a rich man by now.

I returned to India in 2015, with the intention of starting a business. I had a lot of friends and acquaintances from IIT who were launching startups such as the founders of Housing.com. My initial idea was to solve a problem affecting second hand sales platforms like OLX and Quikr where people were unable to trust the identity of the counterparty. I was exploring perhaps using facebook logins in such a platform to introduce an additional level of trust. It was at this time that I began reading up on blockchain.

I used to spend 6 hours a day reading blogs and watching Youtube videos. I also started investing in bitcoin around that time and even initial coin offerings (ICOs). I also started trading, for example I would buy on one exchange and sell on another.

What made you launch a cryptocurrency exchange?

At the time, major exchanges were only offering bitcoin. Many were functioning as brokers rather than exchanges and fees were in the 5-10% range and liquidity was extremely low. I felt that India needs a user driven exchange. My flatmate was also doing a crypto start up. My co founder and I came up with a model where we used global liquidity on the back end. Global exchanges like Binance have a lot of liquidity. We also introduced features like allowing investors to lend their cryptocurrency and earn interest and later on staking in ethereum (which is a similar activity).

Investors can also do leveraged trades on our exchange and we have a platform to educate users about the basics of cryptocurrency. On 6th April 2018 we were about to launch the exchange and on 8th April, the RBI banned banks from processing payments related to cryptocurrency. Overnight we had to change our model from rupee-crypto to crypto to crypto trading. At the same time, we challenged the RBI decision in the Supreme Court and I was personally a party in that case.

How did you fund your venture?

Initially we launched the exchange using our own savings. Subsequently we managed to raise money from investors, even after the RBI ban. Bain Capital Ventures led a seed round in June 2018 investing $0.5 million in our exchange. Polychain Capital one of the biggest hedge funds globally also invested $2.5 million in CoinDCX in 2020.

In March 2020, the Supreme Court lifted the RBI ban and our users spiked 10x. We have made cryptocurrency transactions free of cost for investors. For traders we charge a 0.1%. A trader is defined as person who transacts in multiple cryptocurrencies. There is also no mining fee for transactions on the exchange, because these are not recorded on the blockchain.

Will India go ahead and ban private cryptocurrencies?

The official understanding of this space has evolved. I have been on panel with Subhash Chandra Garg, who was involved in drafting the original bill and he along with others is ok with regulating cryptocurrency as an asset class rather than a currency. We have solutions on how India can regulate cryptocurrency, there just needs to be a discussion with the government. Indians will also lose out on further price movements in cryptocurrency – it is like giving up your gold. I’m hopeful that a ban does not happen.

However if it does materialise, we will challenge it in the Supreme Court. We will also look at relocating outside India. A ban may also cause crypto prices in India to trade far below global prices as a mass of people try to exit at the same time. Arbitrageurs will step in, but a divergence cannot be ruled out. This can erode the wealth of Indian cryptocurrency investors and benefit global arbitrageurs.

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