India’s largest digital asset exchanges are gearing up for an extended crypto winter — a winter with some unwanted local twists.
With token prices plummeting, customers unable to transfer money to their accounts, and a dreaded cryptocurrency transaction tax around the corner, exchanges like Binance-backed WazirX have put plans in motion. dormant expansion.
“We have reduced all of our non-critical costs,” said Rajagopalan Menon, Vice President of WazirX. “We only hire critical candidates, we don’t spend any money. It’s literally crypto winter here,” he said, using industry jargon for an extended bear market.
WazirX is not alone. Rival exchanges Unocoin and BuyUcoin are also reacting to dwindling trading volumes in a market that last year ranked second in the world for crypto adoption.
That a crypto market is in cost-cutting mode is no surprise – Coinbase Global Inc. and Crypto.com have announced layoffs in the past two weeks alone – but Indian exchanges are facing the added burden of a new tax system that leaders fear will wipe out what little trade remains. WazirX’s daily volume has dropped around 95% since October, according to data from CoinGecko.
On July 1, a 1% withholding tax deduction on all transfers of digital assets over a certain size comes into effect despite industry warnings that it will sap cash. This is on top of an existing 30% rate on the income of these assets, plus a proposed value-added tax increase that is making its way through the bureaucracy.
The government also does not allow trade loss compensation on cryptocurrencies, treating them differently from stocks and bonds.
To add to the pain, crypto exchanges have been largely cut off from the mainstream 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 shut down the service as well, which prevented merchants from topping up their cash accounts.
This is a remarkable turnaround from last year when India was one of the hottest crypto markets in the world. The country’s cryptocurrency market grew by more than 600% in the 12 months to June 2021, according to researcher Chainalysis, who used a metric that estimates the total amount of crypto received in a country.
Crypto exchanges ran full-page ads in newspapers and hired Bollywood stars to promote their offerings to one of the world’s youngest demographics. CoinDCX, backed by Coinbase, has become the official main sponsor of a cricket series between India and Sri Lanka.
“Last year was the golden age,” Menon said. “We went from six programmers to 50 in seven months.” WazirX has only added “a few developers and a few critical senior executives” since that hiring surge, he said.
Not everyone brakes. CoinDCX, which raised $135 million in April from funds such as Pantera Capital, does not plan to cut costs, Vinay Tiwari, its senior vice president of finance, said in an interview. This makes it an outlier among exchanges.
BuyUcoin, a small exchange with 45 employees, only hires developers and engineers, chief executive Shivam Thakral said. According to Thakral, it also reduces expenses in areas such as partnerships with social media influencers and avoids mass advertising. BuyUcoin’s trading volume has fallen about 80% since last year’s peak, he said.
“All companies are cautious about spending now, so are we,” Sathvik Vishwanath, CEO of crypto exchange Unocoin, told Bloomberg. “We continue to hire for key positions, but we are not hiring for layoffs.”
Vishwanath said he assesses the impact of the transaction tax, known by the acronym TDS, before making major decisions on strategy. The industry body of which he is a member has unsuccessfully lobbied the government for a reduction in the TDS, he said.
With no immediate reduction in sight, existing WazirX employees may have to take on more work.
“If someone leaves the company, the earlier replacement was almost instantaneous,” Menon said. “Now we are checking if anyone can double for this position.”