India may not be among the top crypto markets much longer

Adoption rates of cryptocurrencies in India are expected to fall rapidly in the second half of the year, as the government’s new taxation rules have driven many away from the industry. The imposition of a 30% capital gains tax on cryptocurrency investments in India in April, followed by a 1% tax deducted at source (TDS) on profits made from crypto in July, have compounded on regulatory uncertainty to hit India’s position as a top-ranking market for cryptocurrencies in Asia.

According to a preview of crypto market analysis firm Chainalysis’ 2022 Geography of Cryptocurrency report, India was the top valued cryptocurrency market in the central, southern Asia and Oceania (CSAO) region. Between July last year and June this year, the Indian cryptocurrency investments market was valued at $172 billion — significantly ahead of second-placed Thailand, which drew less than $150 billion in crypto investments through this period.

However, since the unveiling of Union Budget 2022, heavy taxation on crypto investments in India, coupled with a lack of clarity on how crypto investments would be regulated, have seen exchanges take a hit.

For instance, data from crypto market tracker Crebaco Global from between April this year to September 14 shows a clear drop in daily trading volumes on WazirX and CoinDCX — two of India’s largest crypto exchanges. On WazirX, average daily transactions were at $23.2 million in April — a figure that has declined to $1.3 million this month. This marks a drop of over 94% in crypto trading on the exchange.

On CoinDCX too, daily trades fell from $13.1 million in May this year, to $1.4 million as of September 14.

WazirX saw its quarterly trading averages decline by 86% sequentially to $6.9 million in the September quarter — down from $48.9 million in the June quarter. CoinDCX’s quarterly trades fell to $6.3 million this quarter — down by 79% from $29.8 million in the June quarter. While the September quarter is yet to be completed, the average daily trades on these exchanges do not show any significant upturn.

Explaining this, Vikram Subburaj, chief executive of homegrown cryptocurrency exchange Giottus, said that at the moment, the downturn in the market reflects a domino effect, added upon by a number of factors.

“The implementation of the TDS, which came into effect on July 1, had a major impact on the liquidity in the Indian crypto exchanges. The addition of this tax on crypto profit margins mean that investors are wary of conducting trades — since the latter is no longer profitable for them. This has had a major impact on the trading volumes in exchanges, and the global prevailing economic conditions have done nothing to aid this either,” Subburaj said.

Chainalysis’ 2022 Geography of Cryptocurrency report also reflects this, stating that while India was the second largest cryptocurrency market in the world in 2021, it had already fallen to fourth as of June this year. Given that the crypto trading volumes took a nosedive after July 1, it is likely to have declined even further.

A direct comparison between June and July’s daily trading averages on WazirX and CoinDCX reflect this fact. For instance, while WazirX registered $9.7 million in daily trades in June, this figure fell to $3.3 million in July — a 66% drop.

“Given the present conditions, it is unlikely that the crypto market will recover in the immediate future, thus leading to an overall decline in the Indian crypto market,” Subburaj added.