Indian cryptocurrency players are going through a rough patch.
Declining trading volumes, regulatory vacuums, opposition from the Central Bank of India, money laundering accusations and a global crypto winter are threatening their very existence.
While crypto exchanges remain optimistic about the future and some believe India is at the forefront of the necessary policy framework, fund managers and industry experts remain optimistic about near-term sector growth. I am skeptical.
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“The Reserve Bank of India is concerned about cryptocurrencies as regulators fear money laundering will occur. Even their short-term experience is not good. Until then, funding for these companies will dry up,” said V Balakrishnan, chairman of Exfinity Ventures and former Infosys chief financial officer.
He said many cryptocurrency-related businesses may have to relocate to foreign shores where regulations encourage survival and growth.
Plenty of problems
The global crypto winter has hit trading volumes hard.
According to digital asset data provider CryptoCompare, the average daily trading volume of global crypto funds fell 34% in October to $61.3 million, reaching its lowest level since June 2020. Products based on major digital currencies, including Ethereum, witnessed a sharp downward trend during this period.
According to data aggregator nomics.com, Indian cryptocurrency exchanges have not escaped the trend, with trading volumes plummeting in the past six months. Some reports suggested a drop of up to 90% as investors pulled out en masse.
A sharp correction in crypto coin 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% from $47,733.40 a year ago to $19,210.80. Other major currency depreciations are even more severe.
“Volume is a direct result of sentiment. Not just cryptocurrencies, but all major global indices are falling. When sentiment improves, volumes recover. Vice President, Crypto Exchange WazirX Rajagopal Menon told DH:
India’s tax system is making things worse.
The world’s second most populous country has yet to develop a policy framework to regulate digital assets, but this year’s budget will introduce a 30% tax on income from cryptocurrency trading. I was. We also implemented a 1% TDS (withholding tax) on the sale of crypto assets from July 1st, wiping out most of the inflows into these digital assets.
Fear of money laundering
An Enforcement Bureau investigation into allegations of money laundering involving gaming apps and Chinese loan operators via cryptocurrency exchanges has undermined the ecosystem’s credibility. In recent months, all major cryptocurrency exchanges have been under the radar with ED raids on their premises. WazirX, CoinDCX, CoinSwitch Kuber, etc. are subject to ongoing investigation.
About nine exchanges, several fintech firms and several payment platforms are now under the ED’s radar for alleged violations of the Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act (PMLA). A source told DH on condition of anonymity.
“The ED investigation concerns a Chinese loan app, and nine cryptocurrency exchanges were called as witnesses to provide information about the transactions. The ED does not investigate crypto exchanges. , the industry will fully cooperate and the law will follow its course,” said Menon of WazirX.
Light of hope
The cryptocurrency industry is plagued with problems, but some see a glimmer of hope that things will turn around when India takes over the G20 presidency in December.
Finance Minister Nirmala Sitharaman said cryptocurrencies will be part of India’s agenda at the upcoming G20 meeting. We seek to create a cryptocurrency standard operating procedure (SOP) through global consensus to address end-use concerns.
“We are seeing the first signs of this happening with the OECD[Organization for Economic Co-operation and Development]which is developing a cryptocurrency reporting framework,” said Menon. “The Common Reporting Standard required jurisdictions to obtain information from financial institutions and exchange such information with other jurisdictions.”
“Importantly, India will assume the G20 Presidency from December 1, 2022 to November 30, 2023, and FM plans to discuss cryptocurrencies 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 inhabitants are already beginning to face the heat. With layoffs widespread in recent months, HR experts have highlighted how top talent is avoiding joining the industry.
The ecosystem will evolve further as RBI is poised to launch a digital rupee pilot in the coming months.
“It’s only a matter of time before the ecosystem stabilizes in a favorable regulatory environment.