Top crypto exchanges witnessed a further slump in trading volumes at the end of September. According to data sourced by businessline from Crebaco, a credit rating agency for crypto exchanges and blockchains, the top four crypto exchanges — WazirX, CoinDCX, Bitbns and ZebPay — saw their trading volumes decline 94.23 per cent, 64.06 per cent, 64.04 per cent and 89.24 per cent between August and September. Experts note that the persistent decline in volumes means that even top exchanges with solid cash reserves are likely to face liquidity pressures, and should the current trends continue, they will have to shut down operations in India in the next 12 months. Leading exchanges such as CoinDCX and WazirX also flagged the Centre’s confining compliances as a reason behind the decline in volumes. 

Trade volumes for Indian exchanges have been declining since April when the Centre enforced a 30 per cent tax regime on the profits made on crypto transactions. The subsequent regime of 1 per cent TDS was the final blow to the business for Indian exchanges implemented on July 1. According to experts, the dip in volumes seen in July, August and September is a result of the TDS regime. Since April, most high-frequency traders, who have the largest contribution to the exchange volumes, have moved abroad to avoid Indian regulations.

As the Centre refuses to renege on these regulations, experts such as Sidharth Sogani, Founder and CEO at Crebaco, note that as per current trends, many top exchanges might have to shut shop in the next 12 months as liquidity pressures mount. Exchanges make money from the commissions charged on transactions, and as those transactions dwindle, they earn a mere fraction of what they were earning during their bull market run of 2021. Currently, exchanges are surviving on cash reserves accumulated in the past.

At the same time, as Bitcoin stabilises, foreign exchanges are benefiting from the renewed interest of Indians in trading cryptocurrencies. Reports suggest that user sign-ups have seen a jump recently, but as Mridul Gupta, Chief Operating Officer for CoinDCX, says: “There is a lack of compliance from foreign exchanges to the government’s 1 per cent TDS rules.” This is suppressing volumes since domestic exchanges have to comply. Indians are trading in exchanges abroad to avoid this tax.

Notwithstanding the long Indian crypto winter, WazirX and CoinDCX note that they are playing for the long haul and will survive the bear market run.

“I will not deny that the implementation of the 1 per cent TDS is an imminent concern for all exchanges, 0.01 per cent TDS is an ideal step. The TDS is certainly affecting our growth, but it is not a threat to our survivability, and we are using the time to innovate and bring new products to our users,” noted Gupta.

“As the government takes note of the data, they could potentially change the course of their policy as they have done in the past. This is going to be a tough time for the crypto industry. The objective is to survive the crypto winter. There will be a lot of pain- and those who survive will be the ones who adapt,” said, Rajagopal Menon, Vice-President, WazirX.