New Delhi: In 2022, just four years since its launch, WazirX became India's largest cryptocurrency trading platform with a turnover of $43 billion. But the following year, the company saw a 90 percent drop in business, generating just $4 billion.
Similarly, cryptocurrency investment firm Mudrex, founded in 2018, is struggling to stay afloat in India. Due to regulatory compliance, it has also lost about 90 percent of its business.
Both companies are among several companies that have fallen due to the heavy taxes imposed in 2022 by the Indian government on crypto assets. Many of the companies have now been forced to move their businesses abroad, mainly to Dubai.
In 2022, the Center decided to impose a 1 per cent tax deducted at source on the transfer of crypto assets, which fall under the category of virtual digital assets (VDA), whose value exceeds Rs 50,000, and a 30 per cent tax on all profits.
The Reserve Bank of India has also been cautious of cryptocurrency trading and has long maintained that cryptoassets have no underlying value of their own and represent a risk to macroeconomic and financial stability.
Founded in 2018, WazirX made cryptocurrency trading accessible to Indians through its innovative P2P or peer-to-peer platform, making cryptocurrency conversion faster and easier. Soon, thousands of users were exchanging millions of dollars in cryptocurrency every day.
โThat took the Indian crypto scene by storm and helped us become the largest cryptocurrency exchange in India,โ Rajagopal Menon, vice president of WazirX, told ThePrint, giving the company's turnover figures in 2022, and then the drastic drop in 2023.
Faced with high taxes and regulatory uncertainty, WazirX has now moved a portion of its business to Dubai, while continuing to operate from its Mumbai headquarters.
Even as these companies are suffering an exodus, industry players are hoping for a policy change in the upcoming Union Budget in February, allowing them to return home.
โWe hope that at least part of this will be reflected in the budget. The world is built on hope, cryptocurrencies too (The world is built on hope, and so are cryptocurrencies),Menon told ThePrint.
Also read: From Lucknow to Ludhiana, Indian women do not leave cryptocurrencies to technicians and men in suits
Go to Dubai
Apart from taxes, the RBI's skeptical stance on cryptocurrencies like Bitcoin and Ethereum has also caused cryptocurrency companies to reconsider doing business in India, Menon noted.
To buy cryptocurrencies, you need a stable connection between a cryptocurrency trading account and a bank account, but banks have been "nervous" about working with cryptocurrency exchange companies because the RBI remains wary of cryptocurrencies, he explained.
"The lack of ease of doing business makes it difficult to do business here."
While uncertainty prevails in India, Dubai's apparent pro-crypto stance with its clear, tax-free regulations has attracted some of India's largest cryptocurrency exchange companies, helping it achieve the goal of becoming the " financial capital of the Middle East".
The crypto sector is regulated by the Dubai Virtual Asset Regulatory Authority (VARA), giving businesses much-needed certainty. Additionally, the United Arab Emirates has a zero-tax policy on cryptocurrency holdings and earnings.
"Dubai is attracting these people to attract more talent, businesses and investments which in turn will generate income and a thriving ecosystem," Menon said. "They're rolling out the red carpet."
Faced with regulatory ambiguity, Mudrex co-founder and CEO Edul Patel brought his company to the US while maintaining a base in India.
Patel told ThePrint that after its inception in 2018, Mudrex gained close to a million users on the platform, raking in around $22 million, but due to regulatory compliance, business fell by around 90 percent.
In a situation like this, cryptocurrency companies have stopped focusing on India. "Some companies still exist and continue to work in India, but they are expanding to Dubai because it is a rich region with many assets," he added.
Hoping to return
According to Patel, people who invest in cryptocurrencies have matured over the years.
While the cryptocurrency sector started with people looking at cryptocurrencies from a short-term profit perspective, it has now shifted to a long-term holding perspective, he said.
โI remain optimistic about the future of cryptocurrencies in India. People have no problem paying taxes, they have a problem paying high taxes,โ he said.
In a written statement shared with ThePrint, Ashish Singhal, co-founder and group CEO of PeepalCo, the parent company of CoinSwitch Kuber, another large Indian cryptocurrency company, noted that the government has put in place a national regulatory framework to curb money laundering. in line with global standards.
"This could be the basis for India to reconsider its tax treatment of VDAs, which are an outlier, both domestically and internationally," he wrote, noting that reducing tax arbitrage will also help curb the flight of capital, consumers, investments and talents. in addition to making a dent in the underground economy of the VDAs.
According to blockchain analytics platform Chainalysis' Global Cryptocurrency Adoption Index 2023 published last year, India ranks first when it comes to cryptocurrency adoption at the grassroots level.
Menon also said that in his 20-year career he had observed that people's investment options had changed.
While cryptocurrency memes based on Dogecoin and Shiba have almost shaped crypto culture among young people, American influencers have made them aware of non-fungible tokens or NFTs, he explained.
โThe young generation of cryptocurrency investors look to (SpaceX and Tesla founder) Elon Musk, who often talks about dogecoin and cryptocurrencies. Therefore, digital assets are very natural for the new generation,โ Menon said, adding that youngsters love the risk factor.
To make cryptocurrencies a success in India, the new advocacy body for cryptocurrency companies in India, the Bharat Web3 Association, informed the government about the problems caused by taxes on crypto assets, requested compensation for losses and appropriate regulations.
โCryptocurrencies can transform the lives of ordinary Indians,โ Menon said, adding that if allowed to be used with proper regulations and understanding, cryptocurrencies can help finance India's rural economy. "Cryptocurrencies are democracy in its purest form."
(Edited by Nida Fatima Siddiqui)
Also read: The RBI should view cryptocurrencies as assets, not currencies. Nobody uses it to buy groceries.
