Home / Markets / Cryptocurrency /  Tax, regulatory uncertainties may hit India’s crypto ranking

NEW DELHI : The adoption of cryptocurrencies in India is expected to fall rapidly in the second half of the year, as new taxation rules drive 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 regulatory uncertainty, and are set to hit India’s position as a top market for cryptocurrencies in Asia.

According to crypto market analysis firm Chainalysis’ Geography of Cryptocurrency report for 2022, 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. However, since the unveiling of Budget 2022, heavy taxation on crypto investments in India, coupled with a lack of clarity on how such investments would be regulated, have seen exchanges take a hit.

Data from crypto market tracker Crebaco Global from April this year to 14 September show 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 is now down to $1.3 million this month, marking a drop of over 94%.

On CoinDCX, too, daily trades fell from $13.1 million in May to $1.4 million on 14 September.

WazirX saw its quarterly trading averages decline 86% sequentially to $6.9 million in the September quarter from $48.9 million in the June quarter. CoinDCX’s quarterly trade 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.

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 1 July, 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’ 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 place as of June this year.

Given that the crypto trading volumes took a nosedive after 1 July, it is likely to have declined even further.

A direct comparison between June and July daily trading averages on WazirX and CoinDCX reflects this fact. 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.

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