5 questions cryptocurrency exchanges must answer now about their operations

The cryptocurrency bill is on its way and the government has shown its hand by the text of the listing of bills for parliament. Cryptocurrencies appear set to be banned. Notwithstanding the decidedly strange new meanings of the word ‘private’ that are being invented, it’s quite clear that there will be one cryptocurrency allowed in India, and that will be an official one issued by the Reserve Bank of India.

However, it will be some time before this bill becomes law. Meanwhile, if stories are to be believed, crores of Indians are trading in cryptocurrencies, on Indian crypto exchanges as well foreign ones. It’s worrisome that this volume of money is being put to use, apparently as an investment and yet there is no regulatory oversight as to what is happening to that money. The people who are buying crypto think it’s an investment, it’s being promoted (if in a slightly disguised manner) as an investment and yet there is no provenance of the very basics of an investment activity.

What do I mean by the basics? When I buy some stock, I go to a stockbroker. I transfer the broker some money from my bank account and in return I see some numbers appearing on the screen where I’m trading. These numbers claim to tell me that I now own some stock. What is the provenance of these numbers? How do I know that there is any underlying reality connected to them? I know that because the stock markets and all entities connected to them are minutely regulated. The brokers are members of an exchange and there is a distinct entity, a stock depository, that connects all this to the underlying reality of the existence and ownership of what I gave my money for. I get live information of what’s happening to my money from multiple independent entities that operate under intense regulatory scrutiny.


There are equivalent regulatory structures for banking, mutual funds, insurance, bonds and pretty much anything that involves handling other people’s money. The entities that call themselves exchanges are nothing of the sort in any legal sense. They are businesses that take your money and in exchange, show you some numbers and a graph on your screen.
No one seems to show any curiosity as to what exactly is the modus operandi of these exchanges. There are some simple questions that can be asked, drawing a parallel from other kinds of exchanges

• Is there any publicly verifiable proof that the underlying cryptocurrencies actually exist in possession of the exchanges in the quantum required?
• When one investor buys a cryptocurrency and another sells the same, do these self-styled exchanges net it out, or do they independently buy and sell the underlying on some parent market for each?
• If they net it out, at what frequency do they reconcile the actual holdings with a parent market? Given that cryptocurrencies are famously volatile, what happens to the gaps in value that must get created?
• In particular, on the day when news of the impending law came, a vast gap was created between Indian and international prices of cryptocurrencies. Surely, a lot of money must have been made or lost in this arbitrage opportunity. Can someone explain? Not a hand-waving explanation but a real rupee-paisa explanation.
• If these self-styled exchanges are pooling investment and then netting them out on a parent market, then why can’t they be treated like mutual funds, because this is exactly what funds do? This is of course more a question for Sebi to answer.

Let’s take a hypothetical situation: One day, a new law puts a stop to the activity of these self-styled exchanges. When the music stops, will investors find that they actually possess exactly what their app screens show? Can these exchanges publicly release verifiable information that proves this? I suspect they may not because if they could have been this transparent then they would already have been so. So if there are really crores of Indians who are into all this, can someone in a position of authority start asking some serious questions.

(The writer is CEO, Value Research)

The crypto craze: 4 cryptocurrency facts that'll surprise you

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Have you been hearing about ups and downs of Bitcoin, Ethereum etc. of late? And you probably haven't missed the Dogecoin memes doing the rounds of social media either. News is abuzz of the cryptocurrencies. Superior returns, among other things, have been making headlines. The crypto space has grown massively in the last few years. There are almost 12-15 crypto exchanges functioning in India and estimates of the daily trading turnover range from Rs 500 crore to Rs 1,500 crore.

Did you know that Bitcoin’s market cap (Rs 50,57,561 crore) is more than thrice that of India’s most valuable company Reliance Industries (market cap Rs 14,11,500 crore)? Here are some other facts you probably didn't know.

Have you been hearing about ups and downs of Bitcoin, Ethereum etc. of late? And you probably haven't missed the Dogecoin memes doing the rounds of social media either. News is abuzz of the cryptocur..

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$1,635 billion is the estimated market capitalisation of all cryptocurrencies and that of Bitcoin alone is more than Rs 50 lakh crore, making it bigger than the combined market cap of the six largest stocks in India, namely Reliance Industries, TCS, HDFC Bank, Infosys Technologies, Hindustan Unilever and HDFC. Ethereum market cap is equal to the next six stocks. In other words, the two biggest cryptocurrencies are bigger than the 12 biggest stocks in India.

$1,635 billion is the estimated market capitalisation of all cryptocurrencies and that of Bitcoin alone is more than Rs 50 lakh crore, making it bigger than the combined market cap of the six largest..

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Rs 1,000-1,500 crore is the combined daily turnover of crypto trading in India. This is less than 1% of the Rs 2,00,000 crore daily trading volumes of stock exchanges in India.

Rs 1,000-1,500 crore is the combined daily turnover of crypto trading in India. This is less than 1% of the Rs 2,00,000 crore daily trading volumes of stock exchanges in India.

10-12 million is the estimated number of active investors and traders in cryptos in India. This is 16-20% of the 60 million active stock investors and traders in the country. According to Chainalysis, a growing number of Indians, now over 15 million, are buying and selling digital coins.

10-12 million is the estimated number of active investors and traders in cryptos in India. This is 16-20% of the 60 million active stock investors and traders in the country. According to Chainalysis..

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The trading hours of the crypto market add to the craziness. The exchanges are open 24x7. Neither holidays/Sundays nor weekends exist in the crypto calendar. You can trade not just all day but even all night. This is unlike the stock and bond markets in India which operate from 9 AM to 3.30 PM (opening and closing bells) and remain closed on weekends, prescribed holidays.

The trading hours of the crypto market add to the craziness. The exchanges are open 24x7. Neither holidays/Sundays nor weekends exist in the crypto calendar. You can trade not just all day but even a..

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