Guesstimates are one of the compelling fundamentals every Product aspirant should be hands on. In this blog post we will try to develop a comprehensive approach to figure out the total cryptocurrency transactions that happened in India for 2021.

Before we start with any guesstimate, first ask clarifying questions to the interviewer for avoiding any confusion. In reference to the current guesstimate it would be better to clarify what does it mean by a cryptocurrency transaction? For the purpose of this guesstimate let us define cryptocurrency transaction as the buying and selling of a cryptocurrency coin or token on any kind of centralized or decentralized platform which involves two users.

Now that we have defined cryptocurrency transactions, let’s deep dive. The elemental formula for this guesstimate would be

Total numbers of cryptocurrency transactions in India for 2021 = Total number of cryptocurrency traders in India * Average number of transactions performed by a trader

We will be using a Top down approach to identify the possible number of traders involved. As the crypto industry is currently at a nascent stage with much euphoria built around it, the number of users onboarding due to FOMO is high.

Hence, it will serve us better if we divide the year 2021 in 4 quarters. However, more on that later.

FIGURING OUT THE TOTAL NUMBER OF CRYPTOCURRENCY TRADERS IN INDIA

STEP 1: Let us start with the current population of India which is assumed to be 130 crores. We will take this as the population at the start of 2021.

As Blockchain (and hence cryptocurrency) is relatively a new technology in India, it is safe to assume that most of the traders involved are from Urban parts of India and a very small percentage of Rural India is involved in cryptocurrency trading, which we can safely be ignored for this guesstimate.

The rule of thumb states only 30% of Indian population lives in Urban areas, which means there are nearly 1.3 cr x 0.3 = ~40 cr Urban Indians

STEP 2: Not every Indian living in Urban areas has access to a smart phone or even a bank account to do cryptocurrency trading. So, let’s assume only 80% Urban Indians have the required facility (a smartphone and a bank account) to start cryptocurrency trading.

Total number of Urban Indians with a smartphone and a bank account = 40 cr * 0.8 = 32 cr

STEP 3: Since cryptocurrency trading is popular particularly among the youth, we will further bifurcate the Urban Indian population based on the age group and their percentage representation in the total population.

STEP 4: Now as mentioned already, the cryptocurrency industry is still nascent and very volatile, it is safe to assume that most of the Indians in the 45+ years bucket will prefer to stay away and would not take high risk to invest in crypto. We will assume only 2% of the total Urban Indian above 45 years are involved in cryptocurrency trading.

In contrast to that, Urban Indian youth is bullish on crypto and think at it as a good opportunity to make money. But most of the population falling below 18 yrs might not have money or knowledge to invest (specifically age group 0-14 yrs). So, let’s assume from the age below 18 bucket, only 2% of the total population is trading in cryptocurrency.

Now, the age bracket 18-45 years is the group with disposable income and larger appetite to take financial risks, thus making them the most active age group for cryptocurrency trading. Let’s assume nearly 8% (less than 10% but more than 5%) of the population is involved in cryptocurrency trading.

Summarizing the approach in the table below:-

Thus we got the total number of Indian cryptocurrency traders at the start of 2021 to be = 20 +105 + 20 = 145 lakh (to simplify we will use 150 lakh or 1.5 cr for further calculation).

STEP 5: Now 1.5 cr traders are assumed to be at the start of the year 2021, but since cryptocurrency is a hot market, every quarter a substantial number of people will join the bandwagon.

To simplify and yet be as accurate as possible, let us break down the year 2021 into 4 quarters. It would also help in assigning the quarter wise sentiment of people and media with cryptocurrency which would help us to come up with an approximate percentage growth rate wrt new people joining the cryptocurrency market (normal per quarter growth rate is assumed to be 10% since crypto right now is a hot industry).

NOTE: We have not considered any traders completely leaving cryptocurrency trading completely as the probability is very slim.

STEP 6: Now, let us go one step farther and try to understand different possible ways in which a cryptocurrency transaction occurs.

First, there are Centralized cryptocurrency trading platforms (we will call them Cryptocurrency exchange). Such popular exchanges are CoinSwitch Kuber or CoinDCX, which offer a platform where you can trade the popular cryptocurrencies such as Bitcoin, Ethereum, and Shiba Inu.

Then there are Decentralized Exchanges (let’s call them DEXs) where traders can trade newly launched coins or tokens for another one. These platforms such as UniSwap, SushiSwap etc are generally used to buy less popular coins (ex- Squid Game token) before reputable cryptocurrency exchanges list it. Due to the high risk involved with these unknown coins (and lack of knowledge) most cryptocurrency buyers stay away from DEXs. For the sake of calculation let us assume that in each quarter only 5% of the total cryptocurrency exchange traders also indulge in DEXs.

Lastly, there are other kinds of platforms such as

1. Marketplaces like OpenSea, where you can buy and sell different kinds of NFTs
2. Crypto based games such as Axie Infinity where gaming token transactions are done
3. Metaverse such as Decentraland where people can do different kinds of things such as advertising, buying virtual concert tickets etc with a Metaverse token
4. Decentral reserve currency platforms where you can “stake” the tokens and earn some interest.
   

But since the adoption and use of these various platforms is miniscule among Indian crypto traders, for the sake of this guesstimate we will ignore the transactions happening on these platforms. However, it is always advisable to update the interviewer about what and why you are excluding as transactions happening on such platforms. It would reflect your knowledge about the crypto industry and give the interviewer confidence in your approach.

Hence, to tabularize the different major platform and traders present on them

This would be the quarter wise data of the number of traders on different types of platforms. Now, let us move to the second part of the equation.

FINDING OUT THE AVERAGE NUMBER OF TRANSACTIONS DONE IN INDIA

STEP 7:  Most of the cryptocurrency traders are primarily driven by emotions (greed, fear etc) thus the frequency of transactions happening on different exchanges ramps up fervently when the market is bullish and vice versa.

Similarly if the market is bullish the traders will risk investing in coins/tokens they have not even heard of, will lead to relatively more rise in the number of transactions happening on DEXs (compared to a Cryptocurrency exchange such as CoinDCX) and vice versa.

Let us assume in a normal month, an average trader does 5 transactions (1 transaction = 1 buying and 1 selling as mentioned in the starting of the blog) on a cryptocurrency exchange and 2 transactions on DEX. And as the market becomes bullish or bearish, the average number of transactions happening increases or decreases.

The ratio of assumed average transactions happening at DEX during a bullish or bearish quarter as compared to a Cryptocurrency exchange is more or less respectively as during a bull run people start buying all kinds of cryptocurrency (means more transactions on DEXs) and during a bear run traders prefer to stick with a known coin (means fewer transaction on DEXs).

STEP 8: Now, let us find out the total transactions happening per quarter and sum it all up.

Please note a couple of points here:-

• The numbers of transactions happening on DEXs form a very less percentage of total cryptocurrency transactions, which confirms our decision to exclude the transactions happening on lesser known NFT, Gaming, Metaverse etc platforms
  

• In the final result we should also exclude the transactions happening on DEXs as its percentage contribution is less than 1% (but it was nice to go through the complete exercise to showcase the interviewer your depth in structured thinking).
  

Hence, total cryptocurrency transactions happened in India for 2021 is -> 22.5 cr + 80 cr + 30 cr + 19 cr = ~150 cr transactions

STEP 9: Before we wind up the blog let’s perform a small sanity check to understand if the final answer makes any practical sense.

The total number of cryptocurrency traders calculated for 2021 was 2.1 cr which matches with the recent data being shared in news, regarding India having approx 2 cr cryptocurrency traders.

Further if we divide the total transactions number (150 cr) which happened in the year 2021 with total cryptocurrency traders (2.1 cr), each trader is making nearly 71 transactions in a year (or nearly 6 transactions in a month) which seems logical.

Thank you for patiently reading through this blog. We hope you were able to gain some insight into how to approach such guesstimates. Keep following PM School for more relevant blogs to aid your Product management Interview prep.