Crypto market experiences obstacles despite its rapid growth.
The high cryptocurrency tax in India is causing concerns among industry insiders, despite the significant surge in Bitcoin prices. This surge has led to a substantial increase in demand on cryptocurrency exchanges and a rise in trading volumes.
CoinDCX, a popular Indian cryptocurrency platform, experienced a fivefold increase in trading volumes in the past month. Starting from $5 million at the beginning of February, the trading volumes reached approximately $25 million by the end of the month. Sumit Gupta, the co-founder of CoinDCX, attributed this impressive growth to the upward trend of Bitcoin prices.
Similarly, WazirX, the largest cryptocurrency exchange in India located in Mumbai, saw a 20-fold increase in trading volumes since the start of 2024. Rajagopal Menon, WazirX’s vice president, noticed a significant rise in new user registrations and daily website traffic, directly linking this surge to the rising Bitcoin prices and positive market sentiment.
Despite the increased interest, trading volumes have not reached their peak levels, partly due to the heavy taxes imposed on crypto transactions in India. In 2022, the government implemented a 30% tax on cryptocurrency profits and a 1% tax on all transactions. These measures have affected retail investments, which have not reached the levels seen in 2021. Additionally, concerns from Indian authorities about the risks associated with cryptocurrency trading, including potential money laundering, contribute to the cautious approach to regulation.
However, some industry insiders still view the tax regime as the Indian government’s implicit recognition of cryptocurrencies as legitimate investment vehicles. Gupta stated, “Over the last couple of years, the industry has seen some progress, firstly the Government’s move to include the VDA industry under the Prevention of Money Laundering Act, 2002 (PMLA)… However, regulatory challenges, such as tax provisions introduced in the Finance Act of 2022, have remained a deterrent for further adoption.”
To sustain demand, regulatory clarity and confidence in the Indian cryptocurrency market are crucial. Sidharth Sogani, founder and CEO of cryptocurrency research firm Crebaco, emphasized the difference between the legal and regulated status of cryptocurrencies in India. He pointed out that regulation would significantly change the dynamics of the market.
The concerns over cryptocurrency regulation have been raised by Indian Finance Minister Nirmala Sitharaman, who firmly stated that Bitcoin and other digital assets should not be considered currencies. Sitharaman is looking to the G20 for the establishment of a comprehensive regulatory framework for cryptocurrencies.
Gupta emphasized the importance of global collaboration among policymakers to develop a coherent and effective regulatory framework for cryptocurrencies. He argued that such collaboration would lead to the pooling of resources, meaningful exchanges of knowledge, and faster progress in establishing a regulatory framework that minimizes “regulatory arbitrage.”
