Indian cryptocurrency exchanges are navigating challenges and adapting strategies in response to regulatory developments and shifts in the crypto landscape.
Facing regulatory uncertainty and high taxation, several crypto firms have opted to shift their operations abroad, with Dubai being a favoured destination. Dubai’s pro-crypto stance, clear regulations, and zero taxation on cryptocurrency holdings and profits have attracted Indian crypto businesses. The Dubai Virtual Asset Regulatory Authority (VARA) regulates the crypto sector in Dubai, providing a stable and certain environment for crypto businesses.
WazirX, in response to challenges in India, has relocated a part of its business to Dubai while maintaining operations from its Mumbai headquarters. The move reflects a broader trend of Indian crypto firms exploring more favourable jurisdictions for their operations.
While some crypto firms are shifting operations abroad, industry players are optimistic about the possibility of a policy shift in the upcoming Union Budget in February. There is hope for more favourable regulations that might encourage these firms to return and operate domestically.
In response to the regulatory challenges, Indian cryptocurrency exchanges are offering incentives to attract traders and investors. CoinDCX, CoinSwitch, and BuyUcoin are providing bonuses, cashback on deposits, and reimbursement of transfer fees to lure users looking for alternative platforms after the crackdown on offshore exchanges.
Regulatory hit
In 2022, WazirX emerged as the leading cryptocurrency trading platform in India, achieving a remarkable turnover of $43 billion. However, the subsequent year saw a stark downturn, with the company reporting a 90% drop in business, recording a turnover of just $4 billion. This decline can be primarily attributed to the stringent taxation measures imposed by the Indian government.
The decline in fortunes of crypto firms can be attributed to the hefty taxation measures introduced by the Indian government in 2022. The government imposed a 1% tax deducted at source on the transfer of crypto assets exceeding Rs 50,000 in value, categorizing them under the virtual digital asset (VDA) category. Additionally, a 30% tax on all profits from crypto transactions was implemented.
Apart from taxation, the Reserve Bank of India’s cautious stance on cryptocurrencies, considering them to lack intrinsic value and pose risks to macroeconomic and financial stability, has also contributed to the industry’s challenges. Establishing and maintaining a stable connection between crypto trading accounts and bank accounts has been hindered by banks’ reservations about working with crypto exchanges due to regulatory concerns.
Despite the current uncertainties, the crypto industry in India remains hopeful for positive policy changes that could pave the way for a more conducive and regulated environment. The newly formed advocacy body, Bharat Web3 Association, has communicated the challenges posed by crypto asset taxation to the government and sought regulatory clarity and understanding.
Source: bfsi.economictimes.indiatimes.com/
