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Effective July 1, the Indian government has started levying a 1% tax at the source (TDS) for trading cryptocurrencies. Just in the last five days, volumes at three major cryptocurrencies – ZebPay, WazirX, and CoinDCX – have plummeted to the tune of 60-87%.
Thus, it is clear that crypto trading volumes at Indian exchanges have been drying up pretty fast. The crypto market mayhem has already hampered retail trading volumes over the last two months. Furthermore, the introduction of the tax seems like another nail in the coffin.
Earlier this year, the Indian Finance Minister announced heavy taxation on crypto profits in addition to a 1% tax on crypto exchanges. Besides, transaction volumes have been on a steep decline as the Indian government has been choking the flow of fiat funds to the exchanges.
As of July 2, Binance-backed crypto exchange WazirX reported trading volumes of $3.8 million. A year back, WazirX used to report this amount of trading volume in less than 2 hours. Speaking to Bloomberg, WazirX Vice President Rajagopal Menon said:
While long-term crypto holders are still buying and selling, market makers and high-frequency traders are “gone”. Traders are also doing more peer-to-peer trading and migrating to so-called decentralized exchanges.
Indian Exchanges Face Major Trouble
Liquidity has been a major issue faced by several global exchanges and is especially true for Indian exchanges due to unfavorable government laws. On Monday, July 4, Peter Thiel-backed Indian exchange Vauld announced stopping withdrawals.
Vauld announced that it has been facing severe liquidity issues with over $200 million in withdrawals after Terra’s collapse. The massive fallout of such crypto exchanges has raised major doubts over the ability to protect user funds.
Binance CEO Changpeng Zhao issued a warning that investors should not choose exchanges that require VC funding to sustain. These platforms lure customers with great APY on their crypto deposits. However, in extremely dire conditions, they often fail to protect their customers.