Faced with a 90% decline in business, cryptocurrency exchanges are leaving India, but with expectations of returning : WazirX became India’s largest cryptocurrency trading platform in 2022, with a $43 billion turnover, just four years after its launch. However, the next year, the company’s revenue dropped by 90 percent, totaling only $4 billion.
Faced with a 90% decline in business, cryptocurrency exchanges are leaving India, but with expectations of returning
Similarly, Mudrex, a cryptocurrency investment firm formed in 2018, is battling to remain viable in India. It has also lost about 90% of its business as a result of regulatory compliance.
Both companies are among numerous that have been subjected to heavy taxation on crypto assets by the Indian government beginning in 2022. Many of the companies have been obliged to relocate their operations abroad, primarily to Dubai.
In 2022, the Centre agreed to levy a 1% tax deducted at source on transfers of crypto assets that fall under the virtual digital asset (VDA) category and have a value more than Rs 50,000, as well as a 30% tax on earnings.
The Reserve Bank of India, too, has been sceptical about cryptocurrency trade, claiming that crypto assets lack underlying value and pose a risk to macroeconomic and financial stability.
WazirX, founded in 2018, made cryptocurrency trading accessible to Indians with its revolutionary P2P (peer-to-peer) technology, making crypto conversion faster and simpler. Thousands of users soon began exchanging millions of dollars in cryptocurrencies on a daily basis.
“That took the Indian crypto scene by storm and helped us become India’s largest crypto exchange,” Rajagopal Menon, vice-president of WazirX, told ThePrint, citing numbers for the company’s turnover in 2022, followed by a sharp drop in 2023.
Faced with high taxation and regulatory uncertainties, WazirX has relocated a portion of its business to Dubai while continuing to operate from its Mumbai headquarters.
Even as these enterprises leave, industry players are hoping for a legislative move in the forthcoming Union Budget in February that will allow them to return.
“We hope that at least some of it will be included in the budget. The world is built on hope, and so is cryptocurrency.
Going to Dubai
Apart from taxation, the RBI’s scepticism about cryptocurrencies such as Bitcoin and Ethereum has prompted crypto businesses to reconsider doing business in India, according to Menon.
To buy bitcoin, a steady connection between a crypto trading account and a bank account is required, but banks have been “nervous” about cooperating with crypto exchange firms due to the RBI’s continued suspicion of cryptocurrencies, he noted.
“The lack of ease of doing business makes it difficult to do business here.”
While uncertainty reigns in India, Dubai’s apparent pro-crypto position, along with clear laws and no taxation, has attracted some of India’s largest cryptocurrency exchange firms, assisting it in achieving its goal of becoming the “financial capital of the Middle East”.
The Dubai Virtual Asset Regulatory Authority (VARA) regulates the cryptocurrency market, providing businesses with much-needed clarity. Furthermore, the UAE maintains a tax-loose policy on bitcoin ownership and income.
“Dubai is attracting these people to bring in more talent, companies and investments which will in turn generate revenue and a thriving ecosystem,” Menon went on to say. “They are rolling out the red carpet.”
Faced with regulatory ambiguity, Mudrex co-founder and CEO Edul Patel relocated his company to the United States while keeping a presence in India.
Patel told that following its launch in 2018, Mudrex garnered almost a million users and raised approximately $22 million, but sales collapsed by nearly 90 percent due to regulatory compliances.
In this context, bitcoin companies have ceased focused on India. “Some companies still exist and continue to work in India, but they are expanding to Dubai because it is a rich region with lots of assets,” he said.
hoping to return
According to Patel, cryptocurrency investors have matured over time.
While the crypto sector began with investors looking at bitcoin for short-term gains, it has since shifted to a long-term holding attitude, he said.
“I remain positive about the future of cryptocurrency in India. People don’t mind paying taxes; they just don’t like paying big taxes, he remarked.
In a written statement , Ashish Singhal, co-founder and group CEO of PeepalCo, the parent company of CoinSwitch Kuber, another major Indian cryptocurrency firm, stated that the government has put in place a domestic regulatory framework to combat money laundering that is consistent with global standards.
“This could be the basis for India to reconsider its tax treatment of VDAs, which is an outlier, both domestically and internationally,” he wrote. He added that reducing tax arbitrage will also help stem the flight of capital, consumers, investment, and talent, as well as dent the grey economy for VDAs.
According to the 2023 Global Crypto use Index, released last year by blockchain analytics platform Chainalysis, India leads the way in grassroots cryptocurrency use.
Menon, too, stated that during the course of his 20-year career, he has seen changes in people’s financial decisions.
While cryptocurrency memes based on Dogecoin and Shiba have mostly formed crypto culture among young people, American influencers have made them aware of non-fungible tokens, or NFTs, he explained.
“The younger generation of cryptocurrency investors looks to (SpaceX and Tesla creator) Elon Musk, who frequently discusses dogecoin and cryptocurrencies. So digital assets come quite readily to the younger generation,” Menon explained, adding that the youth enjoy the risk aspect.
To ensure the development of cryptocurrency in India, the Bharat Web3 Association, a new advocacy body for cryptocurrency enterprises in India, has contacted the government about the issues posed by taxation on crypto assets, requesting a set-off on losses and appropriate laws.
“Crypto can transform the lives of ordinary Indians,” Menon said, adding that if utilised correctly and with suitable rules, bitcoin may assist finance India’s rural economy. “Crypto is democracy at its purest form.”
