Can the Bitcoin surge push India to overcome its cryptocurrency hurdles?

The recent notable rise in Bitcoin prices has raised a pertinent question among Bitcoin investors: Will this trend change the fortunes of Indian cryptocurrency companies?

The country's cryptocurrency exchanges are experiencing substantial Explosion in demand, fueled by Bitcoin's recent skyrocket. prices at unprecedented levels.

Indian cryptocurrency platform CoinDCX, for example, has reported a significant five-fold increase in trading volumes over the past month.

“Specifically, our spot trading volume, which started around $5 million in early February, increased to approximately $25 million on February 28,” says Sumit Gupta, co-founder of CoinDCX.

“Without a doubt, the recent rise in Bitcoin value has ignited a wave of enthusiasm and confidence.”

Meanwhile, India's largest cryptocurrency exchange, Mumbai-based WazirX, is also seeing significant growth in cryptocurrency transactions.

“My servers are full of excess capacity,” says Rajagopal Menon, vice president of WazirX, which has seen a 20-fold increase in trading volumes since the beginning of the year.

“My new users have increased, my daily traffic has increased. So, bottom line is, it's a function of sentiment: the moment the price goes up, it's a herd mentality and everyone wants to buy. Therefore, we are definitely seeing an increase in the number of people wanting to buy their favorite cryptocurrency.”

Tax burden

Despite increased investor interest, volumes are still below their highs as crypto exchanges are hit by heavy taxes imposed by the country.

In 2022, India imposed a 30 percent tax on cryptocurrency profits, as well as a 1 percent tax on all virtual asset transactions.

While "there is no shortage of people" who want to invest in cryptocurrencies, Menon says, "retail investments have not reached the peak we saw in 2021."

This development coincides with growing apprehensions expressed by Indian authorities regarding cryptocurrency trading. The risks associated with this, along with fears of possible misuse for illicit activities such as money laundering, have raised concerns.

There are also concerns that it could pose a threat to the stability of the country's financial system.

These concerns resonate with numerous nations around the world, including India. Indeed, Indian authorities are struggling with the challenge of how to regulate these assets, especially considering their sustained popularity.

Bitcoin, the largest cryptocurrency, has risen nearly 54 percent so far this year to more than $68,000 as of Friday evening. This was below the new all-time high reached on Thursday of $73,803, which fell further to around $65,000 on Sunday.

Bitcoin's rise has been driven by several factors, such as capital inflows into US spot exchange-traded crypto products and the expectation that global interest rates will fall. This often leads traders to redirect capital towards risky assets.

Investor interest in cryptocurrencies has grown following the approval of 11 spot Bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission in late January.

Bitcoin's "halving" event is expected to occur in April, which will result in a reduction in the rate at which new coins are generated. Historically, these events have caused an increase in the value of the cryptocurrency.

Indian stock markets are pleased to witness a resurgence in investor demand, after a challenging period for the sector.

"We have witnessed a remarkable 150 per cent increase in trading volume in the spot market," says Mr Gupta. “This increase in demand for Bitcoin is fueled by the launch of Bitcoin ETFs, indicating a maturing market.”

The growth trend is not limited to Bitcoin.

The company has seen “significant growth in large-cap cryptocurrencies such as Ethereum, Solana, Shiba Inu and Binance Coin,” says Gupta.

The increase in demand "is not just limited to retail investors: we have also seen a notable increase in participation from institutional investors and high-net-worth individuals."

Regulation update

However, despite renewed interest in virtual assets, exchanges report that the current tax regime continues to curb investor appetite.

“Changes in India's regulatory landscape, including a new tax regime, have influenced the appetite for cryptocurrencies,” says Pranav Srivan Elankovan, founder of Crypfi, a cryptocurrency exchange.

"The introduction of taxes and regulatory uncertainties has led investors to take a more cautious approach, which could dampen demand."

The 2022 taxes have had a huge impact on the industry, Menon says.

“At the time this happened, [crypto investors] It stopped trading in India,” he says.

“They fled to exchanges abroad, because cryptocurrencies know no borders. Therefore, there were many foreign exchange exchanges or offshore exchanges that benefited from Indian clients actually moving capital abroad.

"Our volumes fell 90 percent in the bear markets," at the end of 2022 and last year, he says.

However, he adds that "the Indian government has taken offshore exchanges that do not comply with Indian laws very seriously" and is taking steps to prevent Indian citizens from trading cryptocurrencies on them, thereby benefiting Indian exchanges.

In January, India blocked access to the websites of major global cryptocurrency exchanges after issuing them notices for failing to comply with the country's money laundering laws.

Furthermore, despite the high tax rate of 30 percent, it is widely accepted within the industry that this serves as a clear indication that the government recognizes cryptocurrencies as a legitimate form of investment. Speculation has long persisted that India would impose a ban on cryptocurrencies.

“Sustained demand depends on current regulatory clarity and investor confidence in the Indian cryptocurrency market,” says Elankovan.

Sidharth Sogani, founder and CEO of cryptocurrency research firm Crebaco, made the decision to move from India to Dubai three years ago. He cited the UAE's more “robust and open-minded” approach to the cryptocurrency market as a key factor in his decision.

He claims that despite Bitcoin's rally, Indian cryptocurrency exchanges are still at a disadvantage.

“Volumes have not reached the previous bull cycles that we saw in 2021, when the market had much higher volume and exchanges were more aggressive and did a lot of advertising,” Sogani says.

He states that regulation is of utmost importance.

“India is not a regulated market for cryptocurrencies. It is legal, but it is not regulated: they are two different things,” says Sogani.

“When you say regulation, that means that the regulatory body is responsible for all exchanges in the market reporting in a certain way and that regulatory body does not exist yet. “Once it exists, there will be a different market for India.”

What is Bitcoin and how did it start?

What is Bitcoin and how did it start?

The stock exchanges have expressed their openness and willingness to adopt a regulatory framework.

"We want clear guidelines," says Menon. “For example, it is very difficult, even now, for Indian cryptocurrency companies to obtain reliable banking connections.”

But he believes that "change is on the horizon." This belief arises from India's recent actions under its G20 presidency, which along with other member countries, adopted a strategic plan to ensure synchronized execution of a policy framework for cryptoassets.

“We are hopeful that the regulation will make the [cryptocurrency] "The industry will be a better place to be and things will be much better in the coming years for India," says Menon.

Updated: March 18, 2024, 6:59 am

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