Early winter for Indian crypto exchanges as trading volumes slump, users flock to foreign exchanges

“It is too early to comment on a trend as of now as we are just a few days into the month. The lower volume can also be attributed to weekends, which has been a trend in crypto.  CoinDCX has also been focused on launching TDS-friendly products. Recently, we launched CoinDCX Earn which has been seeing great adoption,” said Minal Thukral, executive vice-president of growth and strategy at CoinDCX.

Transactions slump 

The fall in the number of Indian cryptocurrency application downloads comes at a time when the overall value of transactions has fallen steeply.

For example, WazirX, on which trading shot up to a  record $566 million on October 28, saw the volume drop to just over $3 million on July 4, according to independent cryptocurrency data aggregator CoinGecko.

“Honestly, only god knows where crypto transactions are headed. From April onwards, the sentiment was down but right now we are witnessing an 80 percent decline (in transaction value),” said a senior executive at a large domestic cryptocurrency exchange, requesting anonymity.

“We are waiting for numbers to stabilise, how much market has exactly fallen will be clear in few days. Companies were getting funded because there was a demand for it. You can say that high-frequency traders and day traders and others may have left Indian exchanges, but demand is still there,” they said.

The official added that during a recent conference call, the chief executive officer (CEO) of the exchange said the current financial year will test the company to its core as regulations remain uncertain and in view of the recent correction of various crypto assets including Bitcoin.

Bitcoin, the oldest cryptocurrency also considered the safest and most reliable, has plunged over 71 percent from its all-time high of over $69,000 in November last year to $19,895.75 as of 1400 IST on Tuesday, according to Coindesk.

Flight of investors 

Indian users are moving to foreign crypto exchanges and decentralised exchanges, market participants said.

“The 30% tax on crypto gains that was introduced from April 1 and the 1% TDS on crypto sell transactions introduced from July 1 has made investing in cryptocurrencies tax-prohibitive for Indian investors. Naturally, they are looking at alternative, tax-efficient ways to get crypto exposure,” says Viram Shah, co-founder and CEO of Vested Finance, an investment adviser registered by the US Securities and Exchange Commission.

“The ProShares Bitcoin Strategy ETF that is available on the Vested platform saw a 33% increase in buying volumes in Q2 (April-June) compared to Q1 (January-March). In May, we introduced Grayscale securities on our platform for premium members, and more than Rs. 1 crore has been invested in these securities till date. We feel that as there is more education around these products, more investors will look to explore these tax-efficient options to get crypto exposure,” he added.

While larger crypto players are carefully navigating their way through new and evolving regulations in absence of a complete ban, smaller crypto players are resorting to actions like suspending the withdrawal of funds.

In a statement on July 4, crypto platform Vauld said that financial difficulties had prompted it to suspend all withdrawals, trading, and deposits on the platform with immediate effect.

“We believe that this will help to facilitate our exploration of the suitability of potential restructuring options, together with our financial and legal advisors. We seek the understanding of customers of the Vauld platform that we will not be in a position to process any new or further requests or instructions in this regard,” Vauld said.

“Specific arrangements will be made for customer deposits as may be necessary for certain customers to meet margin calls in connection with collateralised loans,” it added.

The Singapore-based and Indian founders-led company was launched in 2018 with the aim of giving access to “The Core Elements Of Banking To Every Crypto User.”

Debate on regulations 

Vauld stopping its customers from withdrawing funds triggered a fresh debate on social media websites on the regulation of cryptocurrencies.

Deepak Shenoy, founder, and CEO of Capitalmind, on Tuesday, wrote on Twitter that financial products needed higher standards.

“Vauld is dead. It was a crypto startup offering a "yield" on a coin that technically had limited supply. Meaning: If you cannot create new coins what's the point of yield? At scale you're dead. Or, it turns out, even much before,” he said.

In February, the Advertising Standards Council of India (ASCI) issued guidelines saying cryptocurrency-related ads will have to carry disclaimers that tell consumers that crypto products are not regulated and highly risky.

While advertisers and media owners largely followed guidelines by removing banking terms like “deposits” from their advertisements, online influencers with subscribers of all age groups continue to promote crypto products.

As Moneycontrol reported on May 25, the ASCI has processed violations in as many as 29 advertisements by different social media influencers who did not disclose that their crypto posts were actually “paid promotions” by crypto companies.

The government is trying to use blockchain technology for different services presently but is concerned over the anonymity aspect of the technology, Finance Minister Nirmala Sitharaman was quoted as saying by PTI on May 7.

‘Tulip mania’ 

Further, by comparing the crypto boom to the “tulip mania”, Reserve Bank of India (RBI) Governor Shaktikanta Das also has for long made his stance clear that cryptocurrency poses a risk to the overall financial stability of the country.

Tulip mania refers to the Dutch tulip bulb market bubble that occurred in the  mid-1600s when speculation drove up the value of tulip bulbs to extremes and has today become a metaphor for excessive greed.

“We have been cautioning against crypto and look at what has happened to the crypto market now. Had we been regulating it already, then people would have raised questions about what happened to regulations,” Das told CNBC-TV 18 on May 23, referring to the recent fall in crypto prices.

“This is something whose underlying (value) is nothing. There are big questions on how do you regulate it. Our position remains very clear: it will seriously undermine the monetary, financial, and macroeconomic stability of India,” Das said.