Crypto trading volumes across the top four Indian exchanges languished between December and January even as they claimed a 250-2,000 percent jump in new crypto deposits following a recent crackdown on offshore exchanges by the government.
So far, the renewed interest in Indian exchanges with new deposit inflows has not translated into trading volumes, exchange officials said.
WazirX, CoinDCX, Bitbns and ZebPay together reported a 21.6 percent decline in trading volumes between December and January, according to data from crypto research firm CREBACO Global accessed by Moneycontrol.
This was even after two key factors worked out in favour of the Indian crypto sector.
In January, the US Securities and Exchange Commission approved Bitcoin exchange traded funds.
In late December, the Union government sent show-cause notices to nine global exchanges including Binance and Kucoin for not registering with the Financial Intelligence Unit-India (FIU-IND). Later in January, the exchanges were blocked on Apple’s App Store and Google’s Play store and even their URLs were blocked.
Binance, among other global exchanges, had gained huge traction from Indian crypto investors who wanted to get around the 1 percent tax deducted at source on every transaction of over Rs 10,000 and 30 percent tax on income and gains from virtual digital assets.
Loophole effect
Since Binance was not registered with FIU, it didn’t need to report all transactions and taxes to be paid, a loophole that investors used to avoid paying taxes. This resulted in 90 percent of crypto trading volumes in India shifting to offshore exchanges over the past two years, as per industry experts.
At an individual level, three of the four exchanges reported a plunge in month-on-month trading volumes, with the exception of ZebPay, whose volumes increased by 74 percent, an impact of the increased interest since the approval of Bitcoin ETF, the exchange said.
Also read: Indian crypto platforms can’t offer Bitcoin ETF without regulations, say crypto founders
Within days of the offshore exchanges receiving the show-cause notices, WazirX reported a 250 percent increase in crypto deposits. Such inflows are when investors withdraw their holdings from one exchange and move them to another. In this case, it was their preferred Indian exchanges like WazirX and CoinDCX. The latter even said that it had seen a 2,000 percent jump in inflows.
However, this did not translate into improved spot trading volumes immediately.
“Since October, trading volumes have been increasing, but on a month-on-month basis there could be some fluctuations,” Rajagopal Menon, vice president of WazirX, told Moneycontrol. “The lead-up towards January was because there was a lot of excitement around the Bitcoin ETF, which led to the volumes going up. But when the ETF launch happened, it was a bit of a damp squib as Bitcoin prices went up to $49,000 and then crashed back to $42,000, making sentiments subdued.”
So far in February, trading volumes have grown with the increase in Bitcoin prices and this will continue, Menon said. Trading volumes are a reflection of Bitcoin prices, he said.
Explaining the dichotomy of rising crypto deposits and falling trading volumes, Minal Thukral, EVP for growth at CoinDCX, said, “While assets under custody and trading volumes exhibit a correlation, it’s essential to recognise that volumes are significantly influenced by market conditions… Crypto markets have been experiencing high volatility and the recent surge in BTC price, particularly following the ETF approval, has been a pivotal driver. Notably, over $625 million worth of BTC was purchased yesterday.”
Overall, CoinDCX has continued to gain market share month-on-month over the past few months, Thukral said.
ZebPay, which saw a contrarian trajectory in its trading volumes, attributed this increase to the spot Bitcoin ETF approval.
“The last few months have been great for the crypto industry in India as well as for the global market,” Raj Karkara, COO, ZebPay told Moneycontrol. “One major catalyst for this positive uptick in December and January is the lead-up to the launch of spot Bitcoin ETFs and the upward movement of other major Altcoin prices.”
Next boom, coming soon?
The exchanges are now gearing up for the Bitcoin halving event in less than 100 days and the impending approval of a spot Ethereum ETF by the SEC. These events are expected to drive volumes further. Major institutional investors have been filing for both the newly launched Bitcoin ETF and the upcoming Ethereum ETF, in turn legitimising the industry further.
Bitcoin halving occurs roughly every four years and is in a way responsible for the boom and bust cycles of the token. It occurs when the reward for mining Bitcoin transactions is cut in half, reducing the rate at which new coins are created and thus lowering the amount of new supply.
The halving policy is a part of Bitcoin’s mining algorithm to counteract inflation by maintaining the token’s scarcity.
According to ZebPay’s Karkara, approvals of spot Bitcoin ETFs have started making Bitcoin more accessible to retail investors. Bitcoin has been consistently breaching major resistance levels. Bitcoin’s price climbed to as much as $52,079 on February 14, its latest 25-month high, taking the token’s market capitalisation past $1 trillion.
“We expect trading volumes to see a positive upward trend given that the market has seen substantial growth and major institutions are now actively part of the crypto market, which reassures retail investors of the growing acceptance and the need for crypto as a whole,” he added.
Thukral explained that with the halving event a couple of months away, there will be a supply shock. Historically, halving has led to reduced new Bitcoin issuance. Simultaneously, demand continues to grow. This balance between supply reduction and increasing demand is expected to create momentum.
“Traders actively seek opportunities during such periods, contributing to heightened trading volumes,” he said.
Queries sent to Bitbns didn’t elicit any response at the time of publishing.
Sidharth Sogani, founder of CREBACO, said retail investors in India still want to trade in crypto in a secretive manner as the sector awaits regulations and often faces flak from lawmakers for the token’s volatile nature.“The government is not regulating Indian exchanges but continues to ban offshore exchanges,” he said, adding that this becomes troublesome for users or investors who want quality services.
