Volumes on WazirX were down the most at 82%, according to data sourced from crypto research and consulting firm Crebaco. The decline was almost 70% on CoinDCX and 76% on ZebPay.
While crypto exchanges say it is too early to know the actual impact of tax deducted at source (TDS) as trading volumes are typically lower on the weekend, some experts said trading would likely remain under pressure.
“At present, it is still premature to predict the ramifications of TDS. We will be in a better position to understand this by the second week of July,” said Rajagopal Menon, vice president at WazirX. “There has been a fall in trading across the industry as investors shift to hold and there may be another dip as traders see their capital getting locked while trading on KYC-compliant Indian exchanges,” he added.
The newly introduced TDS of 1% on the sale and transfer of virtual digital assets will push day traders to move out of Indian exchanges and restratgise their playbooks, senior crypto industry executives told ET.
Last year, sustained investor interest led to a meteoric rise in volumes on crypto exchanges. According to industry estimates, the top five to six Indian crypto platforms together clocked $70-100 billion in trading volume in 2021, with WazirX alone handling about $43 billion,
ET reported on April 1.
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Impact on traders
Industry insiders expect the decline in trading activity to be further exacerbated by the bear market due to ongoing global macroeconomic conditions.
Meanwhile, some day traders told ET that the grey market would continue to flourish in this scenario and they would try different models to see if staying on Indian exchanges would be profitable.
Shounak Shetty, 28, from Mumbai said his daily assets under management were down from Rs 14 crore in March to Rs 50 lakh now.
“I’d say from March 31, I stopped the majority of my operations but from Friday I’ve sliced that even further. This financial year, I will test on small accounts to see if any kind of model is still profitable,” said Shetty, who is a crypto portfolio manager. “Like other traders, I am trying to figure out if it’s possible to stay profitable on Indian exchanges. This will lead to another brain drain of professional traders to other countries like Dubai that are more welcoming,” Shetty said.
Another trader from Mumbai, who requested anonymity, said: “Whatever little trading I did on Indian exchanges, I will stop now.”
“The crypto peer-to-peer market with thousands of direct buyers and sellers in India will trade even more on decentralised exchanges or international exchanges. Until the government’s regulation does not become more crypto-friendly and user-friendly, these little grey markets will keep growing, unfortunately,” he said.
Impact on exchanges
Senior exchange executives ET spoke to said the new TDS rule will lead to consolidation in volumes.
“On the consumer side, they’ll be looking at how different platforms implement it and what will be most beneficial for them,” said Sathvik Vishwanath, cofounder of Unocoin. He said both retail investors and exchanges were in a bit of a panic mode.
“Trading platforms want to make sure that they have correctly implemented their processes to deduct TDS as each platform has a different model. Everyone will be cautiously watching if everything is as per the plan,” Vishwanath said.
While some exchanges have enough war chest to survive the current market, a few are also considering diversifying into other areas or exploring international markets. Crypto trading platform Coinswitch Kuber is expected to launch its first financial service product by this year.
The industry that has been hammered by new tax laws that were introduced during the union budget this year, has already seen volumes plummet by 40-80% in June compared with March, according to Crebaco. Charging a few on trading activity is the main source of revenue for exchanges.