Cryptocurrency exchanges feel pinch as India's new tax regime starts

Sharp fall in volumes and number of visitors on first three days of April

Domestic cryptocurrency exchanges have witnessed a sharp fall in volumes on the first three days of April following the implementation of the new tax regime. The fall in volumes is between 15 and 55 per cent among various crypto exchanges. Even the number of visitors on these exchanges has fallen.

Sidharth Sogani, CEO, CREBACO Global, a research and rating firm focused on the blockchain and crypto industry, said: “We observed a drop in volumes by up to 55 per cent compared to the volumes in March end, and also a drop of over 40 per cent in domain traffic on Indian exchanges. This was in the first few days of April after the 30 per cent tax came into effect. This is a clear indication of how the Indian crypto space is reacting to the new tax guidelines.”

The fall in volumes, however, has varied among exchanges. The 30 per cent flat tax, no provision to set off losses in the same category, applicability of TDS and GST, not only increases compliance for small investors but also restricts growth of the ecosystem. All these were proposed in the Union Budget presented on February 1, and came into force from last Friday, that is April 1.

Nischal Shetty, CEO of WazirX, India’s largest crypto exchange, agrees that there has been a fall in volumes.

He said, “Recently, we’ve seen that the number of sellers has gone up by 30 per cent in the last two weeks. However, we cannot attribute it entirely to the closing of the financial year. Since the BTC (Bitcoin) price also increased by 11 per cent during the same time frame, many traders might have squared off their positions to book profits or to minimise losses.”

He, however, suggested that investors should wait before clear signals emerge about how the new regime impacts the Indian crypto investment climate.

He added, “It is still premature at this point to predict anything with certainty. However, I believe we will have some idea by the second or third week of April about whether crypto taxes will impact the industry or people will still trade and not worry too much about the changes.”

Meanwhile, there are reports suggesting that the crypto ecosystem is feeling the pinch of a non-conducive business environment in India. According to a poll of 97 blockchain developers in India conducted by CREBACO Global, most of them are considering relocating abroad.

Sogani also said that there has been a consistent fall in visitors on Indian crypto exchanges in the last three months. In December, according to data compiled by his firm, the total visitors were 13.14 million, which fell to 10.77 million in January 2022 and further to 8.8 million in February.