As Crypto Trading Volumes Drop, Smaller Exchanges Risk Shutdown

Indian crypto exchanges are facing a massive liquidity crunch, with trading volumes down nearly 80% on exchanges since January. According to data shared with BusinessLine by digital asset credit rating firm Crebaco, major exchanges are reporting volumes in the red year-to-date.

WazirX, Bitbns and ZebPay lost 75%, 52% and 73% of transaction volumes respectively. One of the main reasons for this drop in volumes is the 30% tax that the Center levied on income from cryptocurrency trading from April 1, 2022. Since then, exchanges like WazirX, CoinDCX, Bitbns and ZebPay saw 80%, 40%, 30% and 65% declines, respectively, in trading volumes.

Sidharth Sogani, CEO of Crebaco Global, said that factors such as TDS at 1% and the likely introduction of GST on crypto are reducing all volumes. Global economic factors such as the impending recession, global cryptocurrency crash have also discouraged the entry of new funds and new entrants into this space.

1% TDS

Trading volumes have fallen further since the 1% withholding tax (TDS) came into effect from July 1. This means that citizens selling their tokens – bitcoin, ethereum, dogecoin, solana and others – will receive 1% less of the value of the assets at the selling price. Indeed, this should have an impact on the capital of traders and investors in the short term.

While some exchanges welcomed the regulatory decision and believe it will boost investor confidence, others say investors will be discouraged as trading volumes will be hit harder. “Trading capital will be eroded during the year with 1% of value withheld on each transaction, although it can be recovered by filing returns,” said Smit Khakhkhar, tech due diligence, Delta blockchain fund. As a result, trading volumes will also decrease.

Data from aggregator nomics.com shows trading volumes on WazirX fell to $3.02 million on July 2 from $14.53 million on June 30. Similarly, CoinDCX volume also increased from $2.62 million on June 30 to $835,135 on July 2. peak, the two recorded combined daily volumes of over $200 million in 2021. Information from Crebaco shows that rupee deposits have also been delayed over the past week due to the implementation of TDS, and deposits are processed slowly compared to before.

Amanjot Malhotra, Country Head, Bitay, said, “The TDS tax is a modern example of a tax provision that would be very detrimental to the crypto industry. The tax provision will not only discourage innovators who have done a great job in promoting India as an innovation hub for industry, but the government will also be at a loss as it will lose the opportunity to earn massive tax revenues due to the overall decline in transaction volumes.

“Building Confidence”

However, Indian stock exchanges as a whole have complied with government guidelines and have formed necessary procedures for execution. Some even believe that the regulatory measure will boost investor confidence. Rajagopal Menon, Vice President of WazirX, said, “The new update will ensure that tax deductions are transparent to keep users tax-informed throughout the crypto buying experience. Defined processes are in place to collect TDS for relevant transactions. »

“Investors can now trade with confidence paying applicable taxes and crypto entrepreneurs in India can conduct their business without any fear,” said Shivam Thakral, CEO of BuyUcoin, a crypto exchange. It will be interesting to see the TDS crypto saga unfold as it will be the first time that crypto transactions will be officially scrutinized by tax authorities, he added.

Liquidity crisis

Meanwhile, experts say that if market conditions do not improve over the next six months, smaller exchanges are likely to close. Indeed, without the required trade, these companies are likely to face a massive liquidity crunch.

Menon noted that high-frequency crypto traders have, in fact, moved their stores from India to other markets such as Singapore and Dubai, which have better tax policies for crypto. “These are the market makers,” Menon said. According to him, these traders have completely stopped trading on Indian exchanges. He noted that older exchanges are cash-rich, so they will survive. However, 30-40 smaller exchanges are likely to be in big trouble if these market conditions persist.

There are already reports of crypto exchanges freezing withdrawal to avoid bank-like situations as investors lose confidence that these exchanges have the necessary liquidity. All experts believe that the crypto ecosystem is set to experience major consolidation this year. “It won’t be good for the ecosystem,” Menon noted.

Published on

July 03, 2022

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