Indian Crypto Exchanges See A Huge Blow With New Tax Rules

Alerts from Indian cryptocurrency exchanges that a disputed fresh transaction fee would reduce trade are going to come into reality, with volumes dwindling since the tax went into force.

According to CoinGecko, three exchanges — ZebPay, WazirX, and CoinDCX — saw drops in the quantity of everyday trade of between 60% and 87% immediately after the 1% tax deduction came into effect on July 1. A fourth exchange, Giottus, had its trade fall by 70%, according to its CEO.

Such severe drops occurred when there was already a low trading volume, as a combination of falling prices, negative tax status, and difficulties in moving capital onto exchanges crushed the marketplace.

Potential Traders Are Gone

According to CoinGecko statistics, Binance supported WazirX traded $3.8 million on July 2, just after the tax term as TDS went into force. It might have required only about 2 hours of trade in 2021, early July to achieve that level. (Crypto exchanges operate around the clock and seven days a week.)

According to WazirX Vice President Rajagopal Menon, though long-term cryptocurrency investors continue to purchase and sell, market participants and potential traders are “dead.” Also, according to him, investors are also undertaking greater peer-to-peer transactions and moving to decentralized exchanges.

In the month of February, the government announced a tax framework for virtual currencies that included TDS and a flat 30% tax on profits from crypto holdings. It also prohibited compensating on losses on such investments, classifying these separately from equities and bonds.

Huge Blowback For Indian Crypto Exchanges

Due to adverse government restrictions, liquidity is a big concern for various worldwide markets, particularly Indian exchanges. On 4th of July, Monday, Peter Thiel supported Indian exchange Vauld suspended withdrawals.

Following Terra’s downfall, Vauld revealed that it was experiencing major cash flow concerns, with over $200 million in withdrawals. The huge blowback from these crypto exchanges has thrown serious questions on their capacity to safeguard customer money.