Why Trade Volumes Have Declined at Indian Crypto Exchanges

When the times are tough, the tough get going—is an age-old adage that describes the current challenges facing the cyrptocurrency investment community most aptly. Faced with the double whammy of a 30 per cent tax on crypto gains along with a 1 per cent tax deducted at source (TDS), crypto investors are looking at ways to mitigate future upheavals. The immediate impact, meanwhile, is seen in the declining trade volumes.

“There is a definite hit on the volumes due to the start of the 30 per cent tax [on gains] and the 1 per cent TDS [on transactions]. Also, this is the first bear market that crypto is witnessing amid an international recessionary trend,” says Vikram Subburaj, CEO of Giottus crypto platform. Trade volumes for Giottus are down by about 70 per cent since the introduction of TDS, he adds.

Finance Minister Nirmala Sitharaman had announced the 1 per cent TDS on crypto transfers in the Union Budget 2022. It came into effect on July 1. Now, if you transact on an exchange then the seller is liable to pay TDS. In a peer-to-peer transaction, the buyer is required to deduct TDS.

Not only that, experts say that TDS will block capital for future transactions. “Buyers who acquire crypto through P2P will have to deal with TDS compliances which can be cumbersome. Sellers will find it difficult to trade in cryptos, as one per cent of the sale value will be blocked as TDS, thereby reducing the capital available for the next trade,” says Punit Agarwal, Founder of KoinX, a crypto-tax solutions platform.

But Minal Thukral, EVP of Growth and Strategy at CoinDCX, differs. “It’s too early to give out a trend as we need to look at the volumes over a period of 30 days as opposed to a brief period. More importantly, we are seeing an increasing trend towards buy-and-hold behaviour.”

Despite the challenges, the platforms are a little optimistic of the future. “We believe the worst is behind us. A rationalisation in the tax regime is likely,” says Subburaj of Giottus.

Experts believe that this opportunity should be used to build products and customer-facing solutions for the future when the markets rebound. “We will continue building new products which will be TDS friendly and provide a long-term investment opportunity,” says Thukral of CoinDCX.

Subburaj of Giottus concurs. “This is an opportunity to build products and customer-facing solutions for an upswing market scenario. Trade volumes will surge again and... we should be able to match up to the demand during those times,” he says.

@teena_kaushal