India’s crypto firms yearn for respite
India’s crypto players are going through a difficult situation.
Declining transaction volumes, a regulatory vacuum, opposition from India’s central bank, money laundering charges and a global crypto winter threaten their existence.
While crypto exchanges remain optimistic about the future, with some believing that India is in the process of formulating the necessary policies, fund managers and industry experts are skeptical of the sector’s near-term growth.
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“The Reserve Bank of India has concerns over cryptocurrencies as the regulator fears money laundering will occur. Even their experience in the short term is not good. Unless the regulator takes a positive view, funding for these entities will dry up, said Exfinity Ventures chairman and former Infosys CFO V Balakrishnan.
He said that many cryptocurrency-related businesses may have to migrate to foreign shores where regulations contribute to their survival and growth.
Problems galore
A global crypto winter has significantly hurt transaction volumes.
Average daily trading volume for global crypto funds fell 34 percent to $61.3 million in October, hitting its lowest level since June 2020, according to digital asset data provider CryptoCompare. Products based on major digital currencies including Bitcoin and Ethereum have witnessed a steep downward trend during this period.
Indian crypto exchanges have not escaped this trend, with their trading volumes falling drastically over the past six months, according to data aggregator nomics.com. Some reports suggested a drop of up to 90 percent as investors left in droves.
Steep correction in cryptocurrency prices is one of the main reasons for such an outcome. For example, the price of Bitcoin – the most popular cryptocurrency – has fallen by almost 60 percent to $19,210.80 apiece from $47,733.40 a year ago. The fall in other major currencies is much deeper.
“Volume is a direct result of sentiment; not only crypto but all major global indices are down. Volumes will recover as sentiment improves. We are investing in investor education as we believe this is the best time to learn about crypto that will pay dividends when the bull market comes,” Rajagopal Menon, vice president of crypto exchange WazirX told DH.
Indian tax rules have made things worse.
Although the world’s second most populous country has yet to formulate a policy framework to regulate digital assets, this year’s budget introduced a 30 percent tax on income from crypto transactions. It also implemented a TDS (tax deducted at source) of 1 percent on the sale of cryptocurrency assets from July 1, wiping out most inflows into these digital assets.
Fear of money laundering
The Enforcement Directorate’s investigation into alleged money laundering involving gaming apps and Chinese loan operators through crypto exchanges has undermined the credibility of the ecosystem. In recent months, every major crypto exchange has come under the radar with a search by the ED at their premises. WazirX, CoinDCX, CoinSwitch Kuber and others have been brought in under the ongoing investigation.
Around nine exchanges, several fintech firms and a few payment platforms are currently under the ED’s radar for alleged violations of the Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act (PMLA), sources told DH on condition of anonymity.
“ED investigation is about Chinese lending apps and the nine crypto exchanges were called as witnesses to provide information about transactions. ED is not investigating crypto exchanges. The investigation is ongoing, the industry will cooperate fully and the law will take its course,” said WazirX’s Menon.
Ray of hope
While the crypto industry is plagued with problems, some see a glimmer of hope that things will improve when India takes over the G20 presidency in December.
Finance Minister Nirmala Sitharaman has said that crypto will be part of India’s agenda in the upcoming G20 meeting. It is in the pursuit of creating standard operating procedures (SOPs) for cryptocurrencies through global consensus in its attempt to address end-use concerns.
“We are seeing the first signs of this happening with the OECD (Organization for Economic Co-operation and Development) developing the Crypto Asset Reporting Framework,” Menon said. “The Common Reporting Standard required jurisdictions to obtain information from financial institutions and exchange such information with other jurisdictions.”
“Critically, India will take up the G20 presidency from December 1, 2022 to November 30, 2023, and the FM plans to discuss crypto during its presidency and intends to establish a technology-driven regulatory framework,” he told DH.
While the crypto ecosystem remains optimistic about future growth, its citizens have already begun to face the heat. Redundancies have been widespread in recent months and HR experts have highlighted how good talent has shied away from joining the industry.
As the RBI is set to launch a pilot for the Digital Rupee in the coming months, the ecosystem will further evolve.
“It is only a matter of time before the ecosystem stabilizes with a favorable regulatory environment. Until then, it’s a matter of survival,” said one entrepreneur who is eyeing the launch of a Web 3-related startup in the coming days.
