Spot on trading volumes cryptocurrency exchanges CoinDCX, WazirX And Zebpay it decreased by at least 70% on July 3 compared to June 30, even if the law provided for the deduction withholding tax on each transaction came into effect on 1 July.
Volumes on WazirX are as low as 82%, according to data from cryptocurrency research and consulting firm Crebaco. The drop was almost 70% on CoinDCX and 76% on ZebPay.
While cryptocurrency exchanges say it’s too early to know the actual impact of withholding tax (TDS) as trading volumes are typically lower over the weekend, some experts have said trading would likely remain under pressure.
“At the moment, it is still too early to predict the ramifications of the TDS. We will be in a better position to understand this by the second week of July, “said Rajagopal Menon, Vice President of WazirX.” There has been a decline in trading across the industry as investors have switched to the holding position and there may be a another drop as traders see their capital frozen when trading on KYC compliant Indian exchanges, “he added.
The new 1% TDS on the sale and transfer of virtual digital assets will prompt day traders to exit Indian exchanges and reclassify their playbooks, senior cryptocurrency executives told ET.
Last year, sustained investor interest led to a skyrocketing increase in cryptocurrency trading volumes. According to industry estimates, India’s top five or six crypto platforms together recorded a trading volume of $ 70-100 billion in 2021, with WazirX alone managing around $ 43 billion, according to ET on April 1.
Impact on merchants
Industry insiders predict that the decline in trading activity will be further exacerbated by the bear market due to ongoing global macroeconomic conditions.
Meanwhile, some day traders told ET that the gray market would continue to thrive in this scenario and they would try different patterns to see if staying on Indian exchanges would be profitable.
Shounak Shetty, 28, of Mumbai, said his daily assets under management fell from Rs 14 crore in March to Rs 50 lakh now.
“I would say that since March 31 I have stopped most of my operations, but since Friday I have cut it further. This year I will be testing on small accounts to see if some type of model is still profitable, “said Shetty, who is a cryptocurrency portfolio manager.” Like other traders, I am looking into whether it is possible to remain profitable on Indian exchanges. This will lead to another brain drain of professional traders in other countries like Dubai which are more welcoming, ”Shetty said.
Another Mumbai trader, who requested anonymity, said: “Whatever small trade I have made on Indian exchanges, I will stop it now.”
“The peer-to-peer crypto market with thousands of direct buyers and sellers in India will trade even more on decentralized exchanges or international exchanges. Until government regulation becomes more crypto-friendly and user-friendly, these little gray markets will continue to grow, unfortunately, “she said.
Impact on trade
Senior exchange executives ET spoke to said the new TDS rule will lead to volume consolidation.
“On the consumer side, they will look at how the different platforms implement it and what will be most beneficial to them,” said Sathvik Vishwanath, co-founder of Unocoin. He said both retail and exchanges investors were in a bit of a panic.
“The trading platforms want to make sure they have implemented their processes correctly to deduct TDS as each platform has a different model. Everyone will be watching carefully if everything is according to plan, ”Vishwanath said.
While some exchanges have enough spoils of war to survive the current market, some are also considering diversifying into other areas or exploring international markets. Cryptocurrency trading platform Coinswitch Kuber is expected to launch its first financial services product later this year.
According to Crebaco, the sector hammered by the new tax laws introduced this year during the union budget, has already seen volumes fall by 40-80% in June compared to March. Charging a trading fee is the primary source of revenue for exchanges.