India is the top cryptocurrency market in the world and difficulties around tax laws in the country do not appear to have dampened the enormous demand for digital tokens, according to a report by blockchain data platform Chainalysis.
“India leads the world in grassroots adoption as measured by our Global Crypto Adoption Index, but perhaps even more impressively has become the second-largest crypto market in the world by raw estimated transaction volume, beating out several wealthier nations,” Chainalysis said in its Global Crypto Adoption Index 2023 report, which identifies countries where investors are putting the greatest share of their wealth into cryptocurrencies.
India’s emergence as a top cryptocurrency market comes despite its regulatory and tax environment that can be challenging for the industry to navigate, the report added.
“Within the last year, regulatory agencies have provided more clarity on many issues, for instance formally decreeing that its money laundering rules will apply to cryptocurrency transactions,” it said.
India taxes cryptocurrency activity at a much higher rate than most other countries.
It levies a 30 per cent tax on gains – a rate unique to crypto and higher than the country’s tax rate on other investments such as equities – and a 1 per cent tax on all transactions, also known as a tax deducted at source (TDS).
This means that crypto platforms must deduct the amount from a user’s balance at the time of the trade for it to be completed, Chainalysis added.
In this year’s Crypto Adoption Index, six of the top 10 countries are located in the Central and Southern Asia and Oceania (CSAO) region. These include India (1), Vietnam (3), the Philippines (6), Indonesia (7), Pakistan (8) and Thailand (10).
"The fact that India, the Philippines and Pakistan were all ranked among the top 10 in our 2023 Global Crypto Adoption Index bodes well for the UAE,” Kim Grauer, research director at Chainalysis, said.
“These nationalities represent a significant portion of the UAE’s expat population, and the surging popularity among people of these nations is likely to correlate with increased crypto adoption in the Emirates as well.”
There are several factors that are driving the adoption of cryptocurrencies in different CSAO countries, Chainalysis noted. This has led to different usage for different types of cryptocurrency services.
While centralised exchanges take up the majority of web traffic in all of these countries, Chainalysis said there are some country-specific trends in this year’s research.
For example, the Philippines has a huge share of crypto-related web traffic going to gaming and gambling platforms at 19.9 per cent while Vietnam is next at just 10.8 per cent.
Meanwhile, countries such as Pakistan and Vietnam have a higher share of activity happening on P2P exchanges, which are more commonly used in emerging markets or in countries with stricter capital controls.
“From being a hedge against hyperinflation as in Pakistan, to potentially serving as an additional source of income as in the Philippines, the variation in grassroots utilisation demonstrates just how versatile cryptocurrencies are and how effectively they can be adapted to the context of a particular nation,” Ms Grauer said.
The Mena region is home to two of the top 20 countries in this year’s Crypto Adoption Index: Turkey (ranked 12) and Morocco (20), the Chainalysis report revealed.
Many of the top countries in this year’s Crypto Adoption Index are in the lower middle income category, which represents 40 per cent of the world’s population.
"These lower middle income countries have seen the greatest recovery in grassroots crypto adoption over the last year," the research found.
If lower middle income countries “are the future, then the data indicates that crypto is going to be a big part of that future", it said.
Cryptocurrencies can help developing economies bridge the digital divide and boost financial inclusion, billionaire blockchain technology pioneer Brock Pierce told a panel at a future-of-finance event hosted by the Middle East Futures forum in 2021.
“Results are unbelievable … they managed to achieve what was my highest expectation. The data shows the courageous move has worked … the latest technologies or innovations can address the global problem of under or unbanked population,” Mr Pierce said.
Globally, about 1.7 billion adults remain unbanked with no account at a financial institution or through a mobile money provider, a World Bank report released in 2017 showed.
Nearly half of them live in seven developing economies – Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan – and almost 56 per cent of all unbanked adults are women.
However, financial access rates have increased since 2011, when the World Bank began documenting them through the Global Findex database.
Bitcoin has been caught up in the general risk-off attitude on worries about high inflation and US Federal Reserve interest rate hikes.
The crypto market plunged in May and June but gained around 17 per cent in July
On Tuesday, Bitcoin rose almost 4 per cent to $26,141, after falling below $25,000 for the first time in three months on Monday. It is, however, still a far cry from its all-time high of $69,000 in November last year.
Top 10 countries for grassroots crypto adoption in 2023
- United States