New Delhi: In 2022, just four years since its launch, WazirX became India’s biggest cryptocurrency trading platform with a turnover of $43 billion. But the next year, the company recorded a 90 percent drop in business, turning in just $4 billion.
WazirX was not the only company to run into turbulence as a result of hefty taxation imposed in 2022 by the Indian government on crypto assets. Many of the firms have now been forced to shift their business abroad, mainly to Dubai.
In 2022, the Centre decided to imposed a 1 percent tax deducted at source on transfer of crypto assets, which fall under the virtual digital asset (VDA) category, exceeding Rs 50,000 in value, and 30 percent tax on all profits.
The Reserve Bank of India, too, has been wary of cryptocurrency trade and has long maintained that crypto assets don’t have any underlying value of their own and pose 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 crypto conversion faster and simpler. Soon enough, thousands of users were trading millions of dollars in cryptocurrency every day.
“That took the Indian crypto scene by storm and helped us become India’s largest crypto exchange,” Rajagopal Menon, vice-president of WazirX, told ThePrint, giving the figures for the company’s turnover in 2022, and then the drastic fall in 2023.
Faced with high taxation and regulatory uncertainty, WazirX has now moved a part of its business to Dubai, while it continues to run operations out of its Mumbai headquarters.
Even as these firms are undergoing an exodus, industry players are hoping for a policy shift in the upcoming Union Budget in February, allowing them to return home.
“We are hoping at least some of it will happen in the budget. Ummeed pe dunya kaayam hai, crypto bhi (the world rests on hope, and so does crypto),” Menon told ThePrint.
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Going to Dubai
Apart from taxation, the RBI’s sceptical stance on cryptocurrencies such as Bitcoin and Ethereum has also caused crypto firms to reconsider doing business in India, noted Menon.
To buy crypto, a stable connection between a crypto trading account and bank account is needed, but banks have been “nervous” about working with crypto exchange firms due to the RBI remaining wary of cryptocurrency, 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 regulations and no taxation has attracted some of the biggest cryptocurrency exchange firms from India, helping it achieve the aim to become the “financial capital of the Middle East”.
The crypto sector there is regulated by the Dubai Virtual Asset Regulatory Authority (VARA), providing much-needed certainty to businesses. Moreover, the UAE has a zero-tax policy on cryptocurrency holdings and profits.
“Dubai is attracting these people to bring in more talent, companies and investments which will in turn generate revenue and a thriving ecosystem,” said Menon. “They are rolling out the red carpet.”
Facing regulatory ambiguity, Edul Patel, co-founder and CEO of the cryptocurrency exchange Mudrex, has taken his company to the US while also maintaining a base in India.
Patel told ThePrint that after its inception in 2018, Mudrex gained close to a million users on the platform, raising about $22 million. He, however, added that regulatory compliances have resulted in a loss of close to 90 percent of business for most market players.
In a situation like this, cryptocurrency firms 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 lots of assets,” he added.
Hoping to return
According to Patel, people investing in cryptocurrency have matured over the years.
While the crypto sector started off with people looking at cryptocurrency from a short-term gain perspective, it has now changed to a long-term holding perspective, he said.
“I am still optimistic about the future of crypto in India. People don’t have an issue in paying tax, they have an issue in paying high taxes,” 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 big Indian cryptocurrency firm, pointed out that the government has implemented a domestic regulatory framework to curb money laundering that is in line with global standards.
“This could be the basis for India to reconsider its tax treatment of VDAs, which is an outlier, both domestically and internationally,” he wrote, noting that reducing tax arbitrage will also help stem the flight of capital, consumers, investment and talent, as well as dent the grey economy for VDAs.
According to blockchain analytics platform Chainalysis’ 2023 Global Crypto Adoption Index released last year, India stands first when it comes to grassroots cryptocurrency adoption.
Menon too said that in his 20-year career, he had observed that the investment choices of people had changed.
While cryptocurrency memes based on Dogecoin and Shiba have almost shaped the crypto culture among youth, American influencers have made them aware about non-fungible tokens or NFTs, he explained.
“The young generation of cryptocurrency investors looks at (SpaceX and Tesla founder) Elon Musk, who often talks about dogecoin and cryptocurrency. So digital assets come very naturally to the new generation,” said Menon, adding that the youth love the risk factor.
To make cryptocurrency a success in India, the new advocacy body of cryptocurrency firms in India, Bharat Web3 Association, has informed the government about the problems caused by the taxation on crypto assets, requested set-off on losses and proper regulations.
“Crypto can transform the lives of ordinary Indians,” said Menon, adding that if allowed to be used with proper regulations and understanding, cryptocurrency can help finance India’s rural economy. “Crypto is democracy at its purest form.”
This is an edited version of the report
(Edited by Nida Fatima Siddiqui)
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