Crypto TDSS: TDS rule drives down volumes on crypto sites

Cash trading volumes on crypto exchanges CoinDCX, WazirX and Zebpay fell by at least 70% on July 3 compared to June 30, even as the rule requiring withholding tax on each transaction is entered into force on July 1.

Volumes on WazirX fell the most at 82%, according to data from crypto research and advisory firm Crebaco. The drop was almost 70% on CoinDCX and 76% on ZebPay.

While crypto exchanges say it is too early to know the true impact of withholding tax (TDS) as trading volumes are generally lower on weekends, some experts have said that exchanges would likely remain under pressure.

“At this time, 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 of WazirX. “There has been a drop in industry trading as investors turn to holding and there could be another drop as traders see their capital lock in when trading on KYC-compliant Indian exchanges “, he added.

The new 1% TDS on the sale and transfer of virtual digital assets will cause day traders to exit Indian exchanges and reformulate their playbooks, senior crypto industry executives have told ET.

Last year, sustained investor interest led to a meteoric rise in volumes on crypto exchanges. According to industry estimates, India’s top five to six crypto platforms together saw $70 billion to $100 billion in trading volume in 2021, with WazirX alone managing around $43 billion, ET reported. the 1st of April.

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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 current global macro conditions.

Meanwhile, some day traders told ET that the gray market would continue to thrive under this scenario and they would try different patterns to see if it would be profitable to stay on Indian exchanges.

Shounak Shetty, 28, from Mumbai, said his daily assets under management had risen from Rs 14 crore in March to Rs 50 lakh now.

“I would say from March 31 I stopped the majority of my operations, but from Friday I reduced that further. This exercise I will be testing on small accounts to see if one type of pattern is still profitable,” said Crypto Portfolio Manager Shetty. “Like other traders, I am trying to figure out if it is possible to remain profitable on the Indian exchanges. This will lead to another brain drain from professional traders to other countries like Dubai which are more hospitable,” said said Shetty.

Another trader from Mumbai, who requested anonymity, said: “No matter how little trade I have made on Indian exchanges, I will stop now.

“The peer-to-peer crypto market with thousands of direct buyers and sellers in India will trade even more on decentralized exchanges or international exchanges. Until government regulation becomes more crypto-friendly and user-friendly, these little gray markets will unfortunately continue to grow,” he said.

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Impact on trade

Senior executives at the ET exchange said the new TDS rule would lead to consolidation in volumes.

“On the consumer side, they will look at how different platforms implement it and what will benefit them the most,” said Sathvik Vishwanath, co-founder of Unocoin. He said 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 derive TDS as each platform has a different model. Everyone will be cautiously monitoring if everything is according to plan,” Vishwanath said.

While some exchanges have enough war chests to survive the current market, a few are also considering branching out 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, which has been hammered by new tax laws introduced in the union budget this year, has already seen volumes drop 40-80% in June compared to March, according to Crebaco. The collection of fees on trading activity is the main source of income for exchanges.

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