Crypto exchanges hunker down as everything goes wrong in India

With prices plummeting, customers unable to transfer money to accounts and a transaction tax around the corner, exchanges have put expansion plans on back burner

By Sidhartha Shukla and Suvashree Ghosh

India’s largest digital assets exchanges are bracing for a drawn-out crypto winter — one with some unwelcome local twists.

With token prices plummeting, customers unable to transfer money to their accounts and a dreaded transaction tax on cryptocurrencies just around the corner, exchanges like Binance-backed WazirX have put expansion plans on the back burner.

“We have cut down all our non-critical costs,” said Rajagopalan Menon, WazirX’s vice president. “We are hiring only critical hires, we aren’t spending money at all. It’s literally crypto winter here,” he said, using industry jargon for an extended bear market.

WazirX isn’t alone. Rival exchanges Unocoin and BuyUcoin are also responding to vanishing trading volumes in a market that just last year ranked second in the world for crypto adoption.

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That a crypto marketplace should be in cost-cutting mode is hardly a surprise — Coinbase Global Inc. and Crypto.com have announced layoffs in the last two weeks alone — but Indian exchanges face the added burden of a new tax system that executives fear will wipe out what little trading is left. WazirX’s daily volume has slumped about 95% since October, data from CoinGecko shows.

On July 1, a tax deductible at source of 1% on all digital-asset transfers above a certain size takes effect despite industry warnings that it will sap liquidity. That’s on top of an existing 30% rate on income from such assets plus a proposed value-added tax increase that’s making its way through the bureaucracy.

The government also doesn’t permit offsetting of trading losses on cryptocurrencies, treating them differently from stocks and bonds.

Adding to the pain, crypto exchanges have been largely cut off from the regular banking system since mid-April. That’s when India’s ubiquitous United Payments Interface was made unavailable to them without explanation, prompting some banks and payment gateways to also cut off service, which in turn meant traders couldn’t top up their accounts with cash.

It’s a remarkable turnaround from last year, when India was one of the world’s hottest crypto markets. The country’s cryptocurrency market expanded more than 600% in the 12 months through June 2021, according to researcher Chainalysis, which used a metric that estimates the total amount of crypto received in a country.

Crypto exchanges took out full-page ads in newspapers and signed up Bollywood stars to promote their offerings to one of the world’s youngest populations. Coinbase-backed CoinDCX became the official title sponsor of a cricket series between India and Sri Lanka.

“Last year that was the golden age,” said Menon. “We went from six programmers to 50 in seven months.” WazirX has only added “a few developers and some critical senior people” since that hiring spurt, he said.

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Not everyone is hitting the brakes. CoinDCX, which raised $135 million in April from funds including Pantera Capital, isn’t planning to cut costs, Vinay Tiwari, its senior vice president for finance, said in an interview.

That makes it an outlier among exchanges.

BuyUcoin, a small bourse with 45 employees, is only hiring developers and engineers, Chief Executive Officer Shivam Thakral said. It’s also cutting spending on things like partnerships with social media influencers and eschewing mass advertising, according to Thakral. BuyUcoin’s trading volume has fallen about 80% since peaking last year, he said.

“All companies are being cautious when it comes to expenses now, same with us as well,” Sathvik Vishwanath, CEO of crypto exchange Unocoin, told Bloomberg. “We continue to hire for key positions but are not hiring for redundancy.”

Vishwanath said he’ll assess the impact of the transaction tax, known by the acronym TDS, before making any major decisions on strategy. The industry body he’s a member of unsuccessfully lobbied the government for a reduction in the TDS, he said.

With no immediate relief in sight, existing employees at WazirX may have to shoulder more work.

“If someone leaves the company, earlier replacement was near instant,” Menon said. “Now, we are checking if someone can double up for that position.”