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Fiscal and regulatory uncertainties could hurt India’s crypto ranking

NEW DELHI : Cryptocurrency adoption in India is expected to decline rapidly in the second half of the year as new tax regulations 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% withholding tax (TDS) on gains from crypto in July, has exacerbated regulatory uncertainty and is likely to beat India’s position as a top cryptocurrency market in Asia .

According to crypto market analysis firm Chainalysis’ 2022 Geography of Cryptocurrency report, India was the highest ranked cryptocurrency market in the Central, South Asia and Oceania (CSAO) region. Between July last year and June this year, the Indian cryptocurrency investment market was valued at $172 billion – well ahead of second-place Thailand, which attracted less than $150 billion. However, since the unveiling of the 2022 budget, high taxation of crypto investments in India and ambiguity over how such investments would be regulated have caused exchanges to suffer.

Data from crypto market tracker Crebaco Global from April this year to September 14 shows a significant drop in daily trading volume on WazirX and CoinDCX – two of India’s largest crypto exchanges. On WazirX, average daily transactions in April were $23.2 million — a number that’s now down to $1.3 million this month, down over 94%.

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

WazirX saw its quarterly trading average decline 86% sequentially to $6.9 million in the September quarter from $48.9 million in the June quarter. CoinDCX quarterly trading fell to $6.3 million this quarter — down 79% from $29.8 million in the June quarter. While the September quarter isn’t over yet, the average daily trades on these exchanges don’t show a significant uptick.

Vikram Subburaj, chief executive of domestic cryptocurrency exchange Giottus, said that the market decline at the moment reflects a domino effect, compounded by a number of factors.

“The implementation of TDS, which went into effect on July 1st, had a major impact on liquidity on Indian crypto exchanges. The addition of this tax on crypto profit margins makes investors wary of doing business – as the latter is no longer profitable for them. This has had a major impact on trading volumes on exchanges, and neither has the prevailing economic conditions around the world,” Subburaj said.

Chainalysis’ report also reflects this, stating that despite being the second largest cryptocurrency market in the world in 2021, India had already fallen to fourth place as of June this year.

As crypto trading volume took a nosedive after July 1, it is likely to have dropped even further.

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

“Given the current conditions, it is unlikely that the crypto market will recover anytime soon, which would lead to an overall decline in the Indian crypto market,” Subburaj added.

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