A cryptocurrency exchange is a platform where businesses can buy and sell digital currencies in exchange for Fiat currencies like USD or INR.
The increase in the popularity of cryptocurrencies has created a craze among businesses, leading to a huge rise in the number of cryptocurrency exchanges.
Downfall in Crypto Trading Volume
Even though we have noticed an increase in the number of highly active user exchanges, the Indian crypto exchange market has recently seen a steep fall, approximately $692,092, or about Rs 5.19 crore, according to the data shared by Crebaco Global.
Popular crypto exchange platforms like WazirX and ZebPay have lost approximately 75 and 73% in trading volumes respectively, since January 2022.
One of the main reasons behind this massive dip is the introduction of a 30% tax that the Government of India has levied on income from cryptocurrency trading since April 2022.
According to the CEO of Crebaco Global, Siddharth Sogani, another major reason behind this decrease in trade volume is the introduction of 1% TDS. On July 1st, 2022, the Indian government implemented one per cent TDS on every crypto trade over 10,000 rupees or approximately $127.
According to the Executive Vice President at Coin DCX, Global macroeconomic developments like the impact of the Russia-Ukraine war on oil prices inflation has affected the price, which in turn has also affected trading volumes in India and globally. Some other reasons that have affected the volume are the looming recession and the global crypto crash.
Main Reasons Behind this Massive Downfall in Volume
1. Percentage TDS
With the introduction of 1 % TDS, Indian citizens will now be selling their crypto tokens like Bitcoins and Dogecoin at approximately 1% less than the value of the original selling price. This will have a huge impact on the various traders and short-term capital.
As per the Country Head of Bitay, introducing TDS will be highly harmful to the Indian crypto market. This tax provision will not only stop innovators from promoting India as one of the largest hubs, but the Indian government will also face losses. Also, as the trading volume significantly decreases, the government will miss out on the opportunity to earn huge amounts of tax revenue.
A handful of crypto exchanges have welcomed this new regulation, believing it will boost their client’s confidence. On the other hand, others believe their investors will be heavily discouraged as the trading volume will be affected.
2. Liquidity Crunch
As the trading volumes are falling, you might wonder what will happen to the active users of crypto exchanges. If the market conditions do not improve in the next six months, there is a huge probability that smaller crypto exchanges will shut down.
The main reason is that without an adequate amount of trade, these small exchanges will face a massive liquidity crunch, and they will go bankrupt within no time.
As per the Vice President of WazirX, most of the Global high-frequency crypto traders have shifted their attention from the Indian market to Singapore and Dubai markets which offer better returns and better tax policies.
So even though older cash-rich exchanges will survive, approximately 30 to 40 smaller crypto exchanges will have to close shop unless the market conditions improve.
Smaller crypto exchanges are freezing their withdrawal options for their customers to avoid bankruptcy. This is because a big portion of their clients are losing confidence in these exchanges as they do not have the necessary liquidity.
3. Boosting Confidence
Even with this condition in the market, some big crypto exchanges are working as per the government’s direction and following the necessary protocols. Some exchanges even believe this introduction will greatly boost investor confidence. The exchanges even believe that the latest update will ensure that all the tax reductions are transparent and that the users don’t need to worry about taxation and will have a smooth crypto buying experience.
With this introduction of the TDS, most businesses can confidently trade by paying the taxes, and crypto entrepreneurs can conduct their business without fear from the government.
Minal Thukral, executive vice president at CoinDCX, believes this is the perfect time to build better products and focus on improving customer experience. The cryptocurrency market is currently volatile, but eventually, when the waves settle down, and customers become accustomed to this new tax law, they will trade more. She also said that crypto exchanges would provide a safe area for their customers to invest in crypto assets, and the trade volumes will slowly start growing.
According to market experts, crypto usually moves in cycles. Once for an extended period, there is rapid growth, and suddenly, in the next moment, there is a big downfall followed by a correction. Some crypto exchanges are even considering relocating their operations overseas.
This is the first time the tax authorities will closely monitor the crypto market, and it will be interesting to see how everything folds in the future. Even though there has been a huge dip in the trading volumes, most cryptocurrency trading experts believe this will bring a huge change to the Indian crypto market.
According to the experts, the situation might seem overwhelming; however, they expect the Indian government to develop various solutions as the market regains control and expands.
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