The Crypto Shake-Up Is Hitting Indian Shores
A 34-year-old Mumbai-based musician, who preferred to remain anonymous, was working with a Sweden-based producer. Their charges, roughly Rs 1.8 lakh, were to be paid in cryptocurrencies.
While a 50% advance on the payment had been processed through CoinDCX platform seamlessly a month ago, the final payment got stuck last week.
Why? Because the exchange CoinDCX refused to make crypto transfers.
CoinDCX, in a statement on its website on Monday, told investors that it has disabled crypto deposits and withdrawals for a 14-day period. Deposits and withdrawals in rupees continues to be active. This, according to the exchange, is part of efforts to strengthen its compliance and risk framework.
"Customer interest remains our utmost priority and we will continue to take measures to protect them from the ongoing market volatilities," said CoinDCX, in response to BQ Prime. "We have always been committed to providing a simple, seamless, and compliant experience for investing in crypto assets."
This is only one of the many stories unfolding in the Indian crypto space, which has been hit both by local and global turbulence.
Locally, investigative and tax authorities are keeping a closer watch on crypto exchanges and payment channels are mostly blocked. Globally, crypto prices have plunged with the market capitalisation of all crypto assets dropping to $900 billion from over $2 trillion at the beginning of 2022, according to data available with CoinMarketCap. The rout has taken down a stablecoin and a crypto lender.
Stuck in the middle is a generation of young investors.
Not Your Coins
Those entrenched in the crypto universe are well-versed with the phrase: "Not Your Keys, Not Your Coins". It refers to a situation where if a user were to store their coins on an exchange or with a third-party custodian, the user's eventual ownership of these coins cannot be guaranteed.
In many ways, investors on CoinDCX are facing the same situation, albeit temporarily.
For other exchanges and investors, trouble is coming in different shapes and sizes.
Crypto exchange Vauld, on Tuesday, announced that it has fired 30% of its staff.
In a blog post on the company's website, Darshan Bathija, co-founder and chief executive officer, said that this was because market conditions are becoming more uncertain. Vauld is also cutting its marketing spends and reducing executive compensation by 50%, the post said.
In a twitter post on June 15, Durgesh Kaushik, senior director at US-based crypto exchange Coinbase Inc. said that the company was laying off 8% of its staff in India. The rate of job cuts in India was lower than the 18% global layoffs Coinbase had announced.
“Despite these challenges, India remains a priority market for Coinbase and a strategic long-term growth bet," Kaushik had said.
BQ Prime had previously reported that Indian crypto companies are also facing a covert clampdown, with the banking system not supporting trading activities.
As a senior official at one of India's largest crypto exchanges puts it, three key problems are playing out at the same time in the domestic market:
Worsening global macroeconomic conditions.
Failures in the global crypto ecosystem like Tether and Celsius.
India's punitive tax structure.
To protect their business, exchanges have started limiting crypto withdrawals, reducing expensive hiring, cutting marketing and other non-core spends and are tapping international lenders like Binance Inc. to borrow temporary liquidity, the exchange official quoted above said.
"We may see some possible consolidation among exchanges, since smaller exchanges may not necessarily be able to tide over the current crisis. There are international exchanges who are also waiting on the sidelines, to see if there are potential acquisition targets," said Sharat Chandra, vice president for research and strategy at EarthID, a firm that provides services to crypto firms for customer verification.
Crypto Investors Stuck In The Middle
Stuck in the middle is a set of young investors who took to crypto in the last few years.
According to the head of one of the earliest crypto exchanges in India, who also spoke on condition of anonymity, small value users—even in smaller towns and cities—had taken to trading in these assets.
In comments made in November 2021, Reserve Bank of India Governor Shaktikanta Das had questioned the estimates of crypto users in India. He had also estimated that 70% of these users have invested small amounts between Rs 1,000-3,000 in these assets.
This is the first bear market for most of these small investors, the executive quoted above said.
If the bear cycle in the crypto market were to continue for a few more months, the number of active day traders on formal platforms could permanently fall by 30-40%, the first and second exchange officials quoted above estimated.
The ones with capital to spare are preferring to maintain their holdings and hoping for a turn. Others are keen on liquidating their holdings and moving to safer avenues, the second exchange executive quoted above said.
"The speculators or those on the fringes in the domestic market are most likely to move out. But then those who understand the market are actually sticking around for the cycle to turn. Eventually, there will be a bull market and those who have conviction will reap the benefits," Chandra of EarthID said.