Crypto industry's winter deepens as trading volumes plunge, funds dry up

Volumes tumble over 80% in Jan-Sept; several entities receive 'drawdown notices' from investors

India’s cryptocurrency industry is in for a long, harsh winter, with investment drying up and trading volumes on the exchanges falling sharply this year. If the situation continues, industry executives say, some of the crypto exchanges may cease operations within a year.

The combined cryptocurrency volumes at the country’s top four exchanges – Bitbns, CoinDCX, WazirX, and ZebPay, which account for nearly 80 per cent of the crypto trade – plunged more than 84 per cent during January-September, from $72.3 million to $11.3 million, according to data from crypto research and consulting firm Crebaco.

The volume decline has been particularly sharper after the government introduced 30 per cent tax on income from crypto investments and 1 per cent TDS (tax deduction at source) on all digital-asset transfers above a certain size, effective from April 1 and July 1, respectively. Besides this, risk-off sentiment amid decades-high inflation in the US and many other countries has led investors to flee risky assets like cryptos.

“In the absence of regulations, we don’t see much trading activity in the crypto industry, and the market may remain in hibernation. If this continues, we may see exchanges closing down operations in the next 12 months,” says Siddharth Sogani, founder and chief executive officer (CEO) of Crebaco.

Several exchanges are facing a cash crunch with committed investment not coming from venture capital funds and trading activity seeing a sharp decline, industry executives say. Not many are downloading crypto exchange apps now. Those who hold cryptos or are willing to buy are finding it difficult because most exchanges have put some restrictions on transactions, they say. 

With brokerage income falling drastically and all operating costs remaining intact, the bourses are either considering or have started reducing their staff strength, besides looking for alternatives to survive. Recently, WazirX, a leading crypto exchange, laid off about 40 per cent of its employees.

Rajagopal Menon, vice-president, WazirX, says: “The crypto market has been in the grip of a bear market. The Indian crypto industry has had its unique problems with respect to taxes, regulations and banking access. This has led to a dramatic fall in volumes in all Indian crypto exchanges. To remain financially stable, we've had to reduce our staff to weather the crypto winter. We are not planning further cuts.”

Tales from the Crypt

• The combined cryptocurrency volumes of Bitbns, CoinDCX, WazirX, and ZebPay have plunged more than 84% or from $72.3 mn to $11.3 mn in value terms between January and September
• The volume decline has been particularly sharper after the govt introduced 30% tax on income from cryptos
• The bourses are either considering or have started reducing their staff strength, besides looking for alternatives to survive

According to market sources, in the past two-three months, several entities in the crypto ecosystem, including crypto exchanges, have received “drawdown notices” from their investors, and the release of further funds may be stopped by them. Usually, investors release fund instalments after the target company achieves certain milestones.
 

Nishant Das, global head of talent acquisition at CoinSwitch, however, is putting on a brave face. He says his company has been hiring across the board over the past one year, and has filled up higher posts with executives from Amazon, Flipkart, and WhatsApp. 

To use the current lull in the market, CoinSwitch is also looking at new business avenues. The exchange, Das says, is strengthening crypto product offers and diversifying into other asset classes, including US stocks and mutual funds. The company’s fundraising was completed in 2021, he says.

WazirX founder Nischal Shetty has diverted his attention to his new venture Web-3, also known as Shardeum, which has been built to tackle scaling issues. But Menon says it’s a trend where a founder leads more than one venture. 

“This situation is similar to the trying times the industry faced in 2018. At that time, we doubled down and built our innovative P2P engine. Now, we are launching a slew of new initiatives on the education front, apart from making incremental improvements in the site and apps,” Menon says.

On falling volumes, Menon says this affected all. “Smaller players will be badly affected, which is a shame because they are more nimble and innovative. We at WazirX are under no illusion and know it’s going to be a bleak crypto winter. The crypto industry operates in cycles, and the bear market is inevitably followed by a spectacular bull market. We are confident that we will come out stronger when the bull market arrives.”

ZebPay, one of India’s oldest crypto exchanges, is now seeking licences for crypto business from the Singapore and UAE authorities. Its CEO has quit the exchange and launched a new venture, although he will remain associated with ZebPay. A couple of other Indian exchanges are also said to have lost key persons, but it could not be independently confirmed.