India’s biggest digital asset exchanges are bracing for a prolonged crypto winter, with some unwanted local twists.
With token prices collapsing, customers unable to transfer funds to their accounts, and a looming transaction tax on cryptocurrencies, exchanges such as Binance-backed WazirX have put expansion plans on hold.
We have reduced all non-critical costs, said WazirX vice president Rajagopalan Menon. We are only hiring critical hires and are not spending any money. “It’s literally crypto winter here,” he said, referring to an extended bear market in the industry.
WazirX isn’t the only one. Rival exchanges Unocoin and BuyUcoin are also reacting to declining trading volumes in a market that ranked second in the world for crypto adoption just a year ago.
It’s not surprising that a crypto marketplace would be cutting costs — Coinbase Global Inc. and Crypto.com have both announced layoffs in the last two weeks — but Indian exchanges are also dealing with a new tax system that executives fear will wipe out what little trading there is. According to CoinGecko data, WazirX’s daily volume has dropped by about 95% since October.
Despite industry warnings that it will reduce liquidity, a 1% tax deduction at source on all digital-asset transfers above a certain size goes into effect on July 1. This is in addition to the existing 30% rate on income from such assets, as well as a proposed value-added tax increase that is working its way through the bureaucracy.
The government also prohibits trading losses on cryptocurrencies, treating them differently than stocks and bonds.
To make matters worse, crypto exchanges have been largely cut off from the traditional banking system since mid-April. That’s when India’s ubiquitous United Payments Interface became inaccessible to them without explanation, prompting some banks and payment gateways to cut service as well, preventing traders from topping up their accounts with cash.
It’s a significant improvement from last year when India was one of the world’s hottest crypto markets. According to researcher Chainalysis, which utilized a metric that estimates the total amount of crypto received in a country, the country’s cryptocurrency market expanded more than 600 percent in the 12 months through June 2021.
Crypto exchanges bought full-page newspaper ads and hired Bollywood stars to promote their products to one of the world’s most youthful populations. CoinDCX, which is backed by Coinbase, has become the official title sponsor of a cricket series between India and Sri Lanka.
That was the golden age last year, Menon said. In seven months, we went from six to 50 programmers. WazirX has only added “a few developers and some critical senior people” since that hiring spree, he claims.
Influencer Spending
Not everyone is slamming on the brakes. CoinDCX, which raised $135 million in April from investors including Pantera Capital, has no plans to cut costs, according to Vinay Tiwari, senior vice president of finance. As a result, it is an outlier among exchanges.
According to Chief Executive Officer Shivam Thakral, BuyUcoin, a small bourse with 45 employees, is only hiring developers and engineers. According to Thakral, the company is also reducing spending on things like partnerships with social media influencers and avoiding mass advertising. He claims that BuyUcoin’s trading volume has dropped by about 80% since its peak last year.
Every company is being cautious about expenses right now, including us, Sathvik Vishwanath, CEO of crypto exchange Unocoin, told Bloomberg. “We are continuing to hire for key positions but not for redundancy.
Before making any major strategic decisions, Vishwanath said he will assess the impact of the transaction tax, abbreviated as TDS. According to him, the industry group he belongs to unsuccessfully lobbied the government for a reduction in TDS.
With no immediate relief in sight, existing WazirX employees may be forced to take on additional responsibilities.
If someone exits the company, the replacement was almost instant, Menon said. Right now, we’re seeing if anyone can fill in for that position.
