The announcement by Union Minister of Finance Nirmala Sitharaman about the levy of a 30 per cent tax on Virtual Digital Assets (VDA) has made a significant dent on major Indian crypto exchanges.
Now, the 1 per cent TDS that comes into effect from July 1, under which the buyer of a VDA has to pay a 1 per cent tax at source to the seller is making the exchange platforms more apprehensive of their profitability, especially in times of such high market volatility.
Now, according to data shared by Crypto India, a crypto information provider platform, based on current volumes, exchanges are only able to generate trading fee revenues of $1,000-3,000 at most. Notably, The Finance Act of 2022 included a new Section 194S to the Income Tax Act, 1961 which resulted in the implementation of the cryptocurrency TDS rule.
Earlier, when the Government of India announced its decision to introduce a 30 per cent tax on crypto assets, the crypto volume dropped by 44 per cent in four days.
How Much Of Trading Volume Has Plunged At Crypto Exchanges?
According to data provided to Outlook Money by crypto research and consulting firm CREBACO, the trading volume at WazirX was down by over 82 per cent on July 3, compared to June 30, while the decline on CoinDCX and ZebPay were almost 70 per cent and 76 per cent, respectively in the same timeframe.
There is no data available in the public domain on exchanges like Coinswitch Kuber. Only one exchange, Bitbns, did not see much change in its trading volume, which was about 18.53 per cent.
Says Rajagopal Menon, vice-president, WazirX: “There has been a significant dip across Indian crypto exchanges, and we have witnessed a drop of about 70-80 per cent year-on-year (y-o-y). This has happened due to multiple reasons that have unfolded in various stages. First, last year’s crypto markets were going through a bull cycle, and hence, there was a growth in the number of investors entering the market. As a result, we witnessed record trading volume of over $43 billion, and the investor base also grew by over 10 million.”
Menon further said that as an industry they are going through a bear phase this year. Also, the introduction of a 30 per cent tax this financial year has initiated a significant fall in volumes, where investors started booking their profits at the end of March.
“Third, this dip in volume was further catalysed when banking partners began distancing themselves from providing services to crypto exchanges. This made rupee deposits difficult for investors, resulting in a decline in daily trading numbers,” he said.
Some senior executives of major crypto exchanges told Outlook Money on condition of anonymity that after taxation, the crypto industry in India has been affected a lot.
“Surviving in India seems very difficult for crypto exchanges,” said a senior executive.
Some experts cited this as a reason, adding that some exchanges have started halting withdrawals from their platform, as they are running out of liquidity.
“A lot of crypto exchanges keep some Bitcoin or rupee in their reserves or their cold wallets for long-term storage, and they keep on circulating the same cryptos with new users. But whenever there is a situation like this where people want to withdraw their crypto all at once, it takes a toll on the entire matching system. Another reason is that exchanges just have 2.4 million Bitcoins out of the total 19 million in circulation. So, this clearly indicates that the exchanges are running dry,” says Sidharth Sogani, CEO of CREBACO Global, a crypto data provider platform.
Sharat Chandra, vice president, research and analysis, EarthID, a Blockchain company, however, said that the situation in the crypto market is far from over.
“The spillover effects of extreme market volatility have added to the woes of crypto exchanges already struggling with low trading volumes and fewer user sign-ups. Pivot or perish is the order of the day,” he said.
Chandra further noted that crypto exchanges should pivot their business models to mitigate risks; otherwise, they will face an existential crisis.
Amid current crypto market tumult, Vauld, a crypto trading and lending platform has stopped customer withdrawals from Monday.
Darshan Bathija, the CEO of Vauld Crypto Exchange wrote in a blog post that this is due to a combination of circumstances, such as the volatile market condition prevailing now.
“The financial difficulties of our key business partners is inevitably affecting us, and the current market climate, which has led to a significant amount of customer withdrawals in excess of a $197.7 m since June 12, 2022 when the decline of the cryptocurrency market was triggered by the collapse of Terraform Lab’s UST Stablecoin, Celsius network pausing withdrawals, and Three Arrows Capital defaulting on their loans,” he wrote.