Fortune: Crypto trading in India plummets as much as 70% as new hurdles scare off investors

Fortune: Crypto trading in India plummets as much as 70% as new hurdles scare off investors

The cryptocurrency boom in India, which has the world’s second-largest community of crypto investors, may be turning into a bust.

“In general, we have seen trading volumes [on Indian exchanges] come down by 30%-40% in the last two to three weeks,” Nischal Shetty, founder and CEO of WazirX, India’s biggest cryptocurrency trading exchange told Fortune.

Other Indian crypto exchanges say their trading volumes have been hit too.

Sumit Gupta, co-founder and CEO at CoinDCX, blames the 30-35% drop in trading volume on his exchange, one of India’s largest, on global and domestic factors. Bitcoin has been stagnant at $39,000 to $40,000 for several months, while large traders have slowed their activity due to new taxes, he says.

Atulya Bhatt, co-founder of BuyUcoin, an Indian cryptocurrency exchange, says trading volume on his platform has fallen up to 70% “since the new taxation came in this month.”

Drops in trading volume vary from exchange to exchange, but volumes on most crypto platforms have dipped 30%-40% in April from the prior month, says Raj Kapoor, founder of India Blockchain Alliance, a trade body for the crypto industry.

“It is just the beginning. Volumes will drop substantially if there is no [government] intervention,” says Kapoor. “It is not going to be healthy for a nation like ours. When you have an elephant in the room [like crypto], you have to learn how to dance with it or get trampled.”

The double whammy of new taxes and limited payment mechanisms has soured crypto investors’ sentiment in the South Asian country, home to 25 million investors who hold assets worth more than $6 billion—putting the future of crypto in India in doubt.

India’s new budget, which took effect when the new fiscal year started on April 1, imposed a 30% capital gains tax on cryptocurrency earnings, the same rate the government applies to winnings from horse racing and a significant increase from the previous scheme that didn’t specify taxes for crypto but applied income-based rates that maxed out at 30%. Under the new tax rules, cryptocurrencies are subject to a heavier tax than traditional asset classes like stocks, which are taxed at varying rates starting at 10%. The 30% tax rate on cryptocurrency gains applies even to earners whose total annual income is below INR 250,000 or $3,300 and are otherwise exempt from paying income tax.

“That is causing a lot of fear and stress in the younger population who are into crypto trading,” says Shetty.

In addition to the 30% tax on earnings, the finance ministry is levying a 1% tax on every crypto transaction starting in July in an effort to rein in speculative trading.

“Historical data indicates that transaction taxes significantly reduce trading volumes,” says. Kristin Boggiano, president of crypto exchange Cross Tower.

Italy, for example, introduced a 0.1% tax on equity transactions in 2012 that caused a 35% decline in trading volumes over a two-year period, Boggiano says.

A recent decision by Indian banks to stop funneling rupees to crypto exchanges via state-run Unified Payments Interface (UPI) is also hitting trading volume.

Typically, investors could transfer money from their banks to a crypto exchange wallet over UPI, India’s ubiquitous payments processor that’s responsible for 75% of all crypto transactions in India, according to Shetty’s estimates. Once the transfer hits a wallet, investors can use the money to trade cryptocurrencies, such as Bitcoin. But earlier this month, banks severed that financial plumbing, says Shetty.

The trouble started after Nasdaq-listed crypto exchange Coinbase, which launched rupee-based operations in India earlier this month, publicly said that its users could easily deposit funds to their accounts on the exchange using UPI, throwing the behind-the-scenes payments system into a glaring spotlight. In response to the ad, the state-run National Payments Corporation of India (NPCI), which runs UPI, said it was not aware that the payment platform was being used to buy cryptocurrencies.

The statement by the Payments Corporation caused banks to second-guess the legality of routing payments to crypto exchanges. Banks have operated in a state of semi-limbo regarding crypto transactions for years after the country’s Supreme Court in 2020 overturned an order by the Reserve Bank of India for financial institutions to cut all ties with individuals and businesses dealing in cryptocurrency. The Supreme Court said the order violated the freedom of trade guaranteed by India’s Constitution, freeing up banks to facilitate crypto transactions until the latest NPCI statement delivered another dose of ambiguity.

Without access to UPI, crypto investors are finding it tough to deposit money from bank accounts to their wallets on crypto exchanges.

“We are on a wait and watch mode,” BuyUcoin’s Bhatt. “We are hoping that this is a temporary situation.”

India’s crypto enthusiasts had been hoping that the sector’s era of uncertainty was coming to a close.

Last year, Reserve Bank of India governor Shaktikanta Das said he had “serious concerns” about the potential risks of cryptocurrencies, and the government had proposed prohibiting certain private cryptocurrencies. However, the imposition of taxes on crypto earnings had signaled the government’s intent to regulate digital assets, rather than ban them outright.

But the new tax burden and UPI saga have cast the market back into the unknown, and industry executives say scores of startups in blockchain and crypto are exploring bases outside of India as a result.

“What we are seeing is a flight of funds to outside the country. A lot of people are opening payment wallets outside of India,” Kapoor says. High volume traders and firms are opting for locations like Dubai because it’s easier for crypto businesses to operate there, says Kapoor.

This week, India’s Business Today reported that WazirX founders Shetty and Siddharth Menon had shifted their base of operations from India to Dubai. In an interview with Fortune, Shetty declined to comment on the report. “WazirX is headquartered in Mumbai and Bengaluru, and there is no change in our operating procedure,” the company said in a statement.

BuyUcoin’s Bhatt admits the company has considered relocating from India but says that “[moving is] not a topmost priority as we would like to serve users in India.”

Anndy Lian, Singapore-based chairman of BigOne Exchange, a cryptocurrency exchange based in the Netherlands, expects investors to leave India’s crypto market for rivals in Singapore and Dubai.

“Constantly, we have been asked by Indian communities to start in India. We do not have intentions to set up a base in India currently,” Lian says. “If the regulations are clearer, we might consider.”

 

Original Source: https://fortune.com/2022/04/23/india-cryptocurrency-exchanges-trading-regulation-tax-upi-payments-wazirx-coindcx-buyucoin/

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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FORTUNE.COM: Crypto traders panic at India’s vague plan to ‘prohibit all private cryptocurrencies’

FORTUNE.COM: Crypto traders panic at India’s vague plan to ‘prohibit all private cryptocurrencies’

India will introduce a legislation to regulate cryptocurrencies during the winter session of parliament that begins Nov. 29, sparking panic in the crypto market as traders speculated that the government will ban some—if not all—digital currencies.

Prices of major cryptocurrencies fell on Indian exchanges on the news. Bitcoin dropped by 17%, Ethereum by 15% and Tether by almost 18%.

The planned legislation comes after Reserve Bank of India (RIB) Governor Shaktikanta Das said earlier this month that he had “serious concerns” about cryptocurrencies impact on financial stability, alluding to hordes of small investors who were attracted by speculation in the asset.

The notification for the proposed bill, posted Tuesday on the lower house of parliament Lok Sabha’s website, seeks to prohibit all “private cryptocurrencies” in India, with exceptions to “promote the underlying technology and its uses.” It also seeks to “create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.”

But the government has not clarified the definition of “private cryptocurrencies” or the exceptions, and it is not known whether that term refers to crypto assets whose transactions cannot be tracked on crypto exchanges—or to cryptocurrencies in general.

Previous crypto bills

This is not the India’s first attempt to regulate the freewheeling crypto market.

Three years ago, the Reserve Bank of India (RBI), ordered financial institutions to break all ties with individuals and businesses dealing in cryptocurrency. But in March 2020, the Supreme Court derailed the plan, overturning the order because it violated the freedom of trade guaranteed by India’s Constitution.

Since then, however, retail banks have been reluctant to facilitate crypto transactions, despite the RBI revocation of its 2018 directive.

Earlier this year, Indian lawmakers were expected to revisit crypto regulation, with a bill that would have issued a complete ban on cryptocurrency and punish any violation with 10 years’ jail time or a fine—or both.

The proposed legislation was not taken up due to a lack of space on the legislative calendar, which gave crypto exchanges and digital currency professionals time to lobby for regulation of the sector instead of an outright ban.

The lobbying reportedly persuaded government officials to regulate rather than prohibit private digital currencies. But doubts have now resurfaced about the shape of the proposed legislation. Policymakers are reportedly again thinking of more stringent regulation of private cryptocurrencies.

Sowing doubt is the fact that the draft contents of the Cryptocurrency and Regulation of Official Digital Currency Bill 2021, as the legislation is known, have not yet been made public.

A panic reaction

With India having the second-largest number of crypto users worldwide, “this move looks like it will not only hurt individuals, but also larger businesses,” says Anndy Lian, Chairman at BigONE Exchange for cryptocurrency.

India is estimated to have around 15 million crypto investors with a cumulative investment value of $6 billion.

Clarity on whether the new regulation proposes to ban most cryptocurrency will only be known when the bill is presented to parliament. And after the bill is introduced in parliament at the end of this month, it will likely be extensively debated and modified.

When parliament produces final regulations, however, legal analysts expect them to fall short of a full ban.

“Banning cryptos is a non-workable proposition from the word go because crypto is a global phenomenon. It cannot be banned,” said Pavan Duggal, a senior Supreme Court lawyer and a specialist in cyber laws and cryptocurrencies. “The better option would be to regulate in a legal framework and enabling manner.”

The proposed legislation on cryptocurrency is the first time that the Indian government “is seriously looking at the crypto ecosystem,” he added.

Much of today’s fear of a ban has been driven by the lack of clarity of what constitutes a “private cryptocurrency”, but according to Kumar Gaurav, founder and CEO of Cashaa, a company that finances the crypto industry, its prohibition won’t affect most people.

The term refers to digital assets that are used for financing drug trafficking and terrorism, not digital assets in general, says Gaurav.

“I am sure that what we’ve seen is a panic reaction to India’s bill. It will probably blow over in a couple of days,” he added.

 

Original Source: https://fortune.com/2021/11/24/india-proposed-bill-prohibit-private-cryptocurrencies-bitcoin-shiba-inu-dogecoin/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j