India’s biggest crypto exchanges face a brutal market winter amid unfriendly local regulations.
Plummeting prices, the looming cryptocurrency taxation scheme, and the inability of customers to transfer money into exchanges have all put a damper on Indian exchanges’ plans to expand.
WazirX, built by Indian computer scientist Nischal Chetty in March 2018, has said that it is focusing only on employing critical staff and has cut back on all other expenses amid the current bear market. The remaining employees need to shoulder more work should any current employees resign. Before the current crypto winter, positions were filled almost immediately.
Rivals Unocoin and BuyUcoin are also tightening their belts in line with America’s Coinbase Global, Singapore’s Crypto.com, and most recently, Austria’s Bitpanda. UnoCoin’s CEO told Bloomberg that the company is cutting costs, only hiring out of necessity like many other companies in the industry.
Ominous tax requirements burden investors
Not long ago, cryptocurrency was booming in India, as full-page ads in newspapers showcased gushing Indian celebrities talking up the merits of investing in crypto. But now, Indian exchanges face the additional threat of multiple government-imposed taxes drying up what domestic liquidity remains.
In a recent bid to legitimize the industry, Finance Minister Nirmala Sitharaman proposed a 30% tax on all cryptocurrency profits in her budget speech for the financial year starting April 2022, dealing a blow to many crypto traders.
Another 1% tax payable at the source will be charged for all crypto transfers above a certain threshold, while the possibility of adding value-added tax to the mix is currently being weighed in the houses of Parliament.
Additionally, exchanges like Coinbase became victims of a suspension of the United Payments Interface in mid-April this year that prevented customers from topping up their exchange accounts with cash.
Crypto has a future as a commodity, says WazirX CEO
Prime Minister Narendra Modi has often cited technology and innovation as pillars in fulfilling his country’s vision. This pioneering approach can be seen in India’s leadership in the digital payments space launching United Payments Interface in 2016. The central bank announced a phased approach to tackling a Central Bank Digital Currency in May but has not yet ratified a regulatory framework for crypto.
Following the overturning of a blanket crypto ban by the Supreme Court in March 2020, crypto enthusiasts believed that the Indian government’s stance on crypto stemmed from it viewing private cryptocurrencies as a threat to its national currency and as a vehicle for money laundering and illicit activity.
Shetty told the Financial Times in April last year that he believes government statements point to crypto’s future in India as a commodity rather than a payment method.