Tax and Regulatory Uncertainties Could Affect India’s Crypto Ranking

NEW DELHI : India’s cryptocurrency adoption is set to drop rapidly in the second half of the year as new tax rules push many away from the industry. The imposition of a 30% capital gains tax on cryptocurrency investments in India in April, followed by a 1% withholding tax (TDS) on profits made from crypto in July, added to regulatory uncertainty and are expected to hit India’s position as a leading market for cryptocurrencies in Asia.

According to crypto market analysis firm Chainalysis’ Geography of Cryptocurrency report for 2022, India was the top-rated cryptocurrency market in the Central, South and Eastern Asia region. Oceania (SWAC). Between July last year and June this year, India’s cryptocurrency investment market was valued at $172 billion, well ahead of second-placed Thailand, which attracted less than $150 billion. However, since the unveiling of the 2022 budget, the heavy taxation of crypto investments in India, coupled with a lack of clarity on how such investments would be regulated, has seen exchanges take a hit.

Data from crypto market tracker Crebaco Global from April this year to September 14 shows a sharp decline in daily trading volumes on WazirX and CoinDCX, two of India’s largest crypto exchanges. On WazirX, average daily transactions were $23.2 million in April, a figure that has now fallen to $1.3 million this month, marking a drop of more than 94%.

Also on CoinDCX, daily transactions fell from $13.1 million in May to $1.4 million on September 14.

WazirX saw its quarterly trading averages drop 86% sequentially to $6.9 million in the September quarter from $48.9 million in the June quarter. Quarterly CoinDCX trading fell to $6.3 million this quarter, down 79% from $29.8 million in the June quarter. While the September quarter is not yet over, the average daily trades on these exchanges show no significant recovery.

Vikram Subburaj, managing director of local cryptocurrency exchange Giottos, said that right now the market downturn reflects a domino effect, added to a number of factors.

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

The 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 in June this year.

Given that crypto trading volumes dropped after July 1, it is likely that they have fallen further.

A direct comparison between the June and July daily trading averages on WazirX and CoinDCX reflects this fact. While WazirX recorded $9.7 million in daily transactions in June, that figure fell to $3.3 million in July, a 66% decline.

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

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