Trading volumes on major exchanges have taken a massive hit this week.
- On July 3, trading volumes on WazirX were down about 83%, compared to June 30
- Volumes on CoinDCX, ZebPay and Bitbns were down 70%, 76%, and over 18% respectively, according to research services provider Crebaco.
- On Monday, crypto trading and lending platform Vauld confirmed it was suspending withdrawals, trading and deposits on its platform due to financial challenges, volatile market conditions and financial difficulties of its business partners. The Singapore-based firm, with most of its employees in India, recently asserted that it did not have any exposure to Celsius or Three Arrows Capital and that it remained liquid despite market conditions.
The news comes just days after the Indian government introduced the concept of "tax deducted at source" (TDS) on virtual digital assets and cryptos for transactions over Rs 10,000. Per Central government rules, a buyer must deduct 1% TDS on the amount payable to sellers of digital assets when the transaction amount exceeds $127.
“I believe there is more pain to come in the coming two to three months as factors like an impending recession, and the war in Ukraine is only adding to the negative sentiments," Sidharth Sogani, founder and CEO of Crebaco, told Benzinga.
Volumes have also dropped due to the global broader financial market sentiments. In India, liquidity providers have backed out, leading to substantial drops, Sogani added.
"The government in India is not doing anything to help the space," Sogani said. "Usually, the government comes forward to help industries survive difficult phases. But the government is wrapping the crypto space in shackles making things difficult for the players. I am not very positive on how things will shape up, but maybe in the near future we will have a better picture."
India Blockchain Alliance founder Raj Kapoor said levying 1% TDS will not only discourage entrepreneurs and investors from developing the rapidly evolving industry, but the government will lose out on an opportunity to earn major tax revenue due to reduced transaction volumes in the space.
Over 90% of users trade at least 10 times, and over 80% trade at least 20 times, in a month. The TDS implementation will affect not just the users, but the government as well, he explained.
“This will lead to an exodus of start-ups, entrepreneurs and professionals, further hampering the growth of a growing industry worldwide that has the potential to contribute significantly to India’s stressed economy,” Kapoor added.
Experts also point out that crypto investors are more likely to move away from KYC-compliant centralized exchanges, and much of the trading activity eventually will be driven underground, making compliance enforcement an arduous task for tax authorities.
“Contagion in crypto markets has driven investors away. Onerous taxation and compliance regime will increase investors' exodus and make running a crypto business more challenging. Likes of Vauld are struggling to stay afloat and have paused withdrawals," Sharat Chandra, EarthID Vice President Research & Strategy, said. "This crypto winter is going to be more painful and a longer one. We might see more consolidation in the space. Those with deep pockets like FTX will make strategic bets on crypto entities."
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