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Crypto tax impact: Trading vol continues to drop; exchanges see liquidity crunch

Crypto tax impact: Trading vol continues to drop; exchanges see liquidity crunch

The trading volumes have dropped across exchanges and exchanges are going through a liquidity crunch as well

The trading volumes have dropped across exchanges and exchanges are going through a liquidity crunch as well. The trading volumes have dropped across exchanges and exchanges are going through a liquidity crunch as well.

The recently introduced taxation on crypto has impacted crypto trading on KYC compliant cryptocurrency exchanges gravely. Exchanges are witnessing a steep drop in trading volumes and liquidity providers are also backing out, thereby causing a liquidity crunch.

Last week, Business Today had reported on the drop in trading volumes on KYC compliant crypto exchanges. Interestingly, this trend is being observed this week as well. The trading volumes on crypto exchanges is continuously dropping as shown in the graphs below.

In the past week, the trading volumes on CoinDCX have dropped significantly.

Similar trends were observed on WazirX exchange as well.

Trading volumes on ZebPay also went through a steep decline.

The drop in trading volume is not the only cause of concern for KYC compliant crypto exchanges across India. Exchanges are also going through a liquidity crunch caused by concerns of liquidity providers.

Sathvik Vishwanath, founder and CEO of Unocoin exchange, told Business Today "The liquidity provider margins are very thin. So, they may need to come up with a new strategy itself".

The 1 per cent TDS on crypto transactions is the main driving force behind this frenzy. It is noteworthy to mention that the provision would be applicable from July 1 but liquidity providers seem to be taking a cautionary stance.

"High-frequency traders provide liquidity in the crypto market, enabling efficient buying and selling of assets. These traders operate on extremely thin margins, and locking up their capital with high TDS will restrict their ability to operate, lowering market liquidity and eventually impacting retail investors," Ashish Singhal, Founder and CEO, CoinSwitch told Business Today.

Minal Thukral, Vice President - Growth and Strategy at CoinDCX said "The 1 per cent TDS provision has impacted liquidity providers and high-frequency traders, raising concerns around the viability of the business. We are seeking clarification from the government on whether losses can be mitigated inside a single VDA transaction. "

The recently introduced crypto tax provisions seem to have negatively impacted crypto trading on KYC compliant exchanges. Moreover, it seems like a bumpy road ahead. We would have to wait and watch how this pans out in the near future.

 

Published on: Apr 11, 2022, 2:01 PM IST
Posted by: aakanksha chaturvedi, Apr 11, 2022, 1:37 PM IST