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The crypto ecosystem in India is going through one of its toughest phases. The double jeopardy in the form of price crash and stiff taxation provisions has resulted in up to 80% slump in trading volumes on Indian exchanges.  Mridul Gupta, chief operating officer at CoinDCX, talked to Mint about the impact of the recently introduced 1% tax deducted at source (TDS), notices issued by the  Enforcement Directorate (ED) and the safety of investors’ funds. Edited excerpts from an interview: 

 

What has been the impact of TDS on trading volumes at CoinDCX? 

On the investors‘ side, there is very little impact, because most of them are long-term holders. So, when they are buying, there is no TDS implication. When it comes to traders, they are definitely readjusting their portfolios and positions. But we are yet to realize the full impact of TDS. Maybe, three weeks into the implementation, we would have a better understanding of the impact. 

The threshold for applicability of TDS provisions is 10,000 or 50,000 in case of specified persons. How are you ensuring these provisions are met? 

We are deducting TDS starting from the first transaction. The challenge is that in crypto, every exchange is different, and there is no common layer among them. It’s not possible for us to know, if you did transactions more or less than the threshold. So, to be compliant with the policy, we have basically started charging TDS on all the transactions. 

The 1% TDS is quite challenging for traders, and especially for exchanges. Do you plan to take legal recourse to challenge it? 

No, there is no legal recourse per se. We have to sit with the government and the policy thinktanks and iron this out. How the 1% TDS hurts the ecosystem is that because of this, there will be less adoption of crypto, less companies getting formed in the crypto and the web3 space, and there will be less jobs created. It’s important for policymakers to understand these points and draft the regulation and tax laws accordingly. 

Are users allowed to withdraw crypto and rupee on your platform? 

Most of the users on our platform actually don’t do crypto transfers. Their primary form of taking in and taking out funds is in the rupee form. This number could be as high 98-99%. So, INR fund transfer remains available to all our users. On the crypto transfers, we have disabled it for retail users. 

When it comes to crypto transfers, because we are an exchange, for certain people, who help us in building the liquidity, it is important for us to enable crypto transfers. For them we have some checks in place, basis the eligibility. So, crypto withdrawals remain open for people who provide us liquidity, but for the majority of people on the exchange it remains disabled. 

Some crypto platforms have gone insolvent globally. How is CoinDCX placed? 

Any company, which is in pure lending and risk management business is facing the heat. When you think of CoinDCX, the business model is very different. We rely on transactional income. So, we make revenue by charging a small fee for buying and selling. This capital is kept in cold custody and is not deployed on risky protocols, whatsoever. 

If for whatever reason, CoinDCX becomes insolvent, can creditors seize customers’ crypto and money? 

They can’t. We have ensured the right terms & conditions, policies and standard operating procedures to make sure that the crypto belongs to the customers and not to the shareholders or creditors. Additionally, the crypto is not held on our balance sheet. 

What was the nature of the recent notices to crypto sites by ED?

They wanted to understand certain trade flows. The market is so new that most people in the policy thinktank and in the government bodies don’t understand how the order execution happens. And this was the context of the conversation we had with ED. The primary purpose of the ED was to understand how crypto businesses work and how the transaction flows happen from one state to another. And we have been able to provide them with this information in a satisfactory manner. 

Have you undertaken any cost cutting measures? 

We have undertaken zero cost cutting measures, as we are in a phase of hyper building. We have enough capital to last us for the next four or five years, even if we have zero revenues. We are in fact hiring more people and building more systems to make sure that whenever the market goes up again, people will come back to CoinDCX. We are close to 560 people now, and are in line to meet our projections of having 1,000 headcount by the end of the year. 

Last year, millions of investors entered the crypto market, but they are now sitting on losses. What would you say to them? 

I would recommend people to think putting small amounts at a frequent time interval, so that they don’t have to think about timing the market. Second advice I would give is to use some of the smart tools available on the platform like stop loss or limit orders, etc, which enable them to trade smartly. And number three, which is probably the most important advice is that this is the time to really learn about the kinds of cryptos that exist and which will sustain the test of times and grow over a long period.

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