Crypto –whether as a new asset class, potential hedge against inflation, independence from unabashed monetary printing of fiat currency, a greater fool theory – whatever be the theory – crypto-verse entered the lexicon of many investors, globally as well as in India. This article is not about merits/demerits of investing in crypto. While I definitely see merit in blockchain technologies, its adoption as an asset class is something I have been a passive observer, watching from far. I have not downloaded any app nor do I profess any knowledge of working of the vast ecosystem (apps/exchange/coins etc), but I am keen on behavioural aspects of “crypto adoption” and the above article stresses on some of the aspects of this adoption from an Indian point of view, without offering any view on cryptos itself.
A new working paper from Bank of International Settlements (BIS) – “Crypto trading and Bitcoin prices: evidence from a new database of retail adoption”, by Raphael Auer et al – have collated data from Sensor Tower for G20 countries from August 2015 to June 2022. (Crypto trading and Bitcoin prices: evidence from a new database of retail adoption (bis.org) ).
The report does a detailed analysis on new user acquisition geographically, selling and buying patterns, holding analysis of “whales” (holders of 1000-100,000 bitcoins) and “humpbacks” (holders in excess of 100,000 bitcoins). The report analyses that single most determinant factor for retail adoption has been price increase (not surprising), with new user downloads mirroring trends of Bitcoin price changes (with a lag of 2 months). 40% of global crypto retail users are male below 35 years. As bitcoin prices rose and smaller retail users were buying, larger holders (both “whales” –and especially “humpbacks”) were selling. Again, most of these findings are intuitive, but so are centuries old human emotions of greed and fear – and a data-backed contemporary analysis provides a handy glimpse of the recent travails of allure of crypto-world.
The paper published by Auer et al, also published the detailed database across all G20 countries, thus providing us some insights into the cryptic allure for Indians. The data comes from Sensor Tower, quoting from the report – “Sensor Tower gauges unique downloads per iOS or Google Play account. This methodology avoids double-counting due to re-downloads, ie if a user installs, deletes, then reinstalls the same app on the same device or a new device from the same iOS or Google Play account. Active users are defined as any user that has at least one session on an app over a specific time period (eg day, week or month). If a user has more than one session over the selected time period, they will still only count as one active user for that time period. The active user metric is estimated by Sensor Tower based on a representative sample of users. Bearing this caveat in mind, these data offer the unique possibility of measuring real user-adoption directly rather than through a proxy.”
With this introduction to the data out of the way, here are some interesting insights from the data from an Indian point of view. There have been hazy accounts of extent of Indian participation (claims from 1cr to 10+cr etc), basis the data put out in the report, we have made an attempt to gauge crypto adoption in India.
Firstly, basis this data, we have a sense of unique installs of various crypto-apps/transactions at close to 3cr. In FY22 alone, approx. 2cr new unique installs have happened. As a perspective, in FY22, 2cr new investors were added to stock markets (source: NSE) and about 1.2cr unique investors were added by MF industry (for 12 months ending June 2022) - suggestive that a nascent “crypto industry” did mainstream and seek the attention of many Indians – comparable to many other “traditional” investment avenues of stocks and mutual funds.
With the BIS paper establishing that bitcoin prices were the dominant factor in terms of new account signed up and so one may think the adoption rate has been uniform across countries, it is interesting to see how the new unique install share of Indian users has trended compared to other G20 countries. While US has continued to have lion share in adoption, 4 other countries have seen significant rise in their “market shares” – South Korea, Turkey, Brazil and India. For Turkey specifically, it has seen a significant swing in their market share from less than 5% till June 2020, and then as their currency tumbled, their global market share in terms of new unique installs rose to 25% (March 2021) and has sustained at 10% since. South Korea saw a spike in early 2018 and 2019 – when Bitcoin corrected significantly and subsequently didn’t join in the rush when crypto boom happened post Covid.
The Indian market share (of new unique installs) moves up from less than 2-3% pre demonetisation to about 7-11% in the 12 months post demonetisation. As Bitcoin stagnated in 2018 and 2019, market share also came back to 2-3% levels. And then lockdown worked its magic on Indian adoption of crypto – rising up to 20% global market share (in July 2020), and then as lockdowns etc eased, the global market share came down again till second wave induced lockdowns again, and since then broadly, Indian market share in new unique installs have been in double digits.
In terms of daily active users, broadly India has been clocking close to 1mn users, though there have been two months where it has moved to 2.5mn- not surprisingly, this was around when IPL 2021 was played (which was held in two tranches in 2021 due to the second wave). Just for perspective, per SEBI annual report, there are 12mn monthly active unique traders in equity markets.
And lastly, a distribution of users basis the bitcoin price level when an app was first downloaded – suggests about 77% of Indian users have come in at levels higher than 20000$ (per Bitcoin). In short, they are most likely to be in loss (of course, any parabolic rise in an instrument which attracts new buyers will face such a fate, as price drops. So this will be true for any asset class, which sees rapid rise and fall, and so is not unique only to crypto)
(The above are my calculations from the database, report by Auer et al, have a slightly different break up of G20 users distribution profile and bitcoin price at time of first app download)
While, one doesn’t know the quantum of monies invested by Indians, and therefore the extent of losses –it is likely that close to 4/5th of Indian users (by volume) and 3/4th of G20 (ex-India) users are sitting on losses! 60% of Indian users installed apps for the first time when prices of Bitcoin were trading north of 40000$! (Of course, it is quite possible, that users installed one of these crypto apps and there was either a significant delay in investing post downloads.)
The crypto-world has displayed strong price moves, so maybe the current episode is just a blip, but it will be interesting to see behaviour of these users – will they continue to HODL or will their patience run thin? Only time will tell….
(I can’t stress enough that I have not outlined any view on crypto and its prospects in above article, this is basis factual data out in public domain, and my interest is only to bring out the adoption trends of this asset class. I have used broad approximation of populations of various countries (from public sources) to arrive at user trends, and so there may be more accurate data available with ecosystem players/tax authorities/regulators)