In the ever-evolving landscape of cryptocurrency trading, CoinDCX, a crypto unicorn, is leading the charge for change in India. The company is urging the Indian government to reconsider a tax policy that has dealt a heavy blow to the domestic digital asset market. This tax, imposed a year and four months ago, was originally introduced with the intention of tracking transactions within the crypto sphere.
However, it has inadvertently led to unintended consequences, pushing a significant portion of Indian crypto trading onto international platforms that are far more challenging for local authorities to oversee.
CoinDCX Advocates for Tax Reduction to Revive Indian Crypto Trading
A Taxing Predicament
The tax in question is a 1% TDS (Tax Deducted at Source) applied to crypto transactions, and CoinDCX’s CEO, Sumit Gupta, believes it is time for the government to revisit this policy. Gupta contends that the initial goal of this tax was to create transparency in crypto transactions by enabling tracking and tracing. Still, in practice, it has proven to be counterproductive, prompting traders to move their activities to offshore platforms.
Gupta stated in an interview, “The whole purpose of the TDS was to track and trace transactions, but that is getting defeated.” He also expressed his optimism, expecting the government to take corrective action in light of the issues arising from the current tax policy.
CoinDCX: Nurturing India’s Crypto Ecosystem
Before delving deeper into the tax issue, let’s take a closer look at CoinDCX. Founded in 2018 by Sumit Gupta, Neeraj Khandelwal, and Jitendra Tokas, CoinDCX emerged to meet the surging demand for cryptocurrency trading in India. It provides a secure platform for buying, selling, and trading various digital assets. Offering services like spot trading, futures trading, lending, and more, CoinDCX enables access to a broad spectrum of cryptocurrencies, including popular choices like Bitcoin, Ethereum, and Ripple.
Security is a paramount concern for CoinDCX. The exchange employs industry-standard security measures, such as cold storage for digital assets, two-factor authentication (2FA), and advanced encryption techniques. It operates in strict adherence to Indian regulations, collaborating with authorities to shape clear and comprehensive crypto industry regulations.
Growth and Valuation
CoinDCX has experienced remarkable growth and garnered substantial attention in the crypto space. Investors like Pantera Capital and Steadview Capital Management LLC valued the company at over $2 billion during a funding round in April 2022.
Community and Diversification
Beyond being an exchange, CoinDCX focuses on educating users about cryptocurrencies and blockchain technology. They aim to make crypto accessible to a broader audience in India. Additionally, CoinDCX is actively seeking opportunities to diversify its revenue streams. This includes venturing into international markets and investing in various crypto-related projects. Notably, the company is developing a crypto wallet known as “Okto,” designed to empower users to explore decentralized finance.
Unintended Consequences
The repercussions of this tax are significant. Market makers have chosen to withdraw from Indian exchanges due to the increased costs associated with the tax, which has resulted in reduced liquidity and a decline in trading activities within the country. Despite a global resurgence in Bitcoin following the crypto downturn in 2022, Indian platforms continue to struggle.
Awaiting Regulatory Clarity
India, recognizing the importance of cryptocurrencies, has called for a coordinated global approach to regulating these digital assets, with the support of international institutions. Gupta believes that more regulatory clarity will likely emerge after the nation’s general elections in 2024, with changes potentially taking effect by the end of 2025.
Unfortunately, the Finance Ministry has not provided any response to inquiries regarding the country’s crypto tax policy, leaving the industry in a state of uncertainty.
CoinDCX’s Journey
CoinDCX, valued at over $2 billion before the implementation of the 1% TDS tax in July 2022, is also feeling the effects of the tax policy. The company’s revenues have plummeted, now standing at one-third of the levels seen prior to the tax change. Additionally, compliance expenses have increased, primarily due to the application of anti-money laundering regulations to the crypto industry.
To weather the storm, CoinDCX made the tough decision to reduce its workforce by 12% earlier this year, leaving it with approximately 550 employees. Despite these challenges, the company’s operating revenue and financial reserves provide them with a comfortable five-year “runway,” as Gupta assured.
International Progress
While India grapples with regulatory uncertainty, other global jurisdictions have made significant strides in providing a secure and clear framework for crypto trading. Hong Kong, Dubai, and the European Union are examples of regions that have embraced cryptocurrencies, protecting investors and offering transparency for digital-asset companies.
India’s Indirect Crypto Adoption
Despite the struggles of Indian exchanges like CoinDCX, data from Chainalysis suggests that Indians have continued to embrace cryptocurrencies through alternative channels. Offshore trading and blockchain-based financial services, including lending, have gained popularity. India received a staggering $250 billion worth of crypto in the year leading up to June, second only to the United States, which surpassed $1 trillion in crypto volume, according to Chainalysis.
Diversifying to Thrive
Like its peers in the Indian crypto exchange space, CoinDCX is actively exploring opportunities to diversify its revenue streams. This diversification includes venturing into international markets and participating in projects like BitOasis. Additionally, the company is actively developing a crypto wallet known as “Okto,” designed to empower users to delve deeper into decentralized finance. Gupta explained, “Okto is a growth area we are investing in as we want to see how we can bring web3 to life.” The term “web3” refers to a vision of a decentralized internet built around blockchains.
FAQs
Q: What is the current tax policy affecting crypto trading in India?
The current tax policy imposes a 1% TDS (Tax Deducted at Source) on crypto transactions in India.
Q: Why did the Indian government introduce this tax policy?
The tax was introduced with the aim of tracking and tracing crypto transactions for transparency.
Q: How has the tax policy impacted the Indian crypto market?
The tax policy has led to unintended consequences, causing traders to shift their activities to offshore platforms and prompting market makers to exit Indian exchanges.
Q: What does CoinDCX expect regarding the future of crypto regulations in India?
CoinDCX anticipates more regulatory clarity after the 2024 general elections in India, with potential changes taking effect by the end of 2025.
Q: How has CoinDCX been affected by the current tax policy?
CoinDCX’s revenues have dropped significantly, compliance expenses have increased, and the company had to reduce its workforce by 12%.
Q: How is CoinDCX diversifying its revenue streams?
CoinDCX is seeking international opportunities and investing in projects like BitOasis, a crypto platform, and developing a crypto wallet called “Okto” to explore decentralized finance.
Conclusion
The Indian crypto market faces a challenging period, primarily due to a well-intentioned yet counterproductive tax policy. CoinDCX, along with other industry players, is eagerly awaiting regulatory clarity. Meanwhile, Indians are exploring alternative avenues to engage with cryptocurrencies, even as they seek out solutions to revive the domestic market. With the world’s eyes on the crypto industry, India’s approach to regulation will undoubtedly impact its future in the global crypto landscape.
