More regulations and influx of institution buyers await Indian crypto exchanges in 2024

Indian cryptocurrency exchanges hope 2024 will bring further clarity on regulations, including some potential relief on taxation.

In 2023, Indian cryptocurrency exchanges were rattled with significant challenges domestically and internationally. The central government made a 30% tax rate applicable on crypto assets and a 1% TDS on all transactions, effective April 1.

As a result, volumes across exchanges shrunk significantly as users in the country chose to move as much as $3.8 billion away from Indian cryptocurrency exchanges in light of these legislations, as per a report by research firm EYSA.

Elsewhere, the collapse of Sam Bankman-Fried-led FTX continued to have ripple effects on cryptocurrency companies everywhere. It directly impacted businesses that were associated with the exchange and indirectly affected the faith that users had in centralised exchanges.

Nonetheless, hope seems to be on the horizon with the renewed price rise of Bitcoin and the Securities and Exchanges Commission (SEC)’s approval of a Bitcoin ETF (exchange-traded fund).

“2024 will be an exciting year for crypto given that several institutional investors are showing interest in participating in the crypto market through ETFs. Bitcoin halving event that is going to happen next year is something the entire industry is looking forward to,” Rahul Pagidipati, CEO of cryptocurrency exchange Zebpay tells YourStory.

However, most agree that the coming year will be the year of regulations for the cryptocurrency community. With India being a signatory for the G20 Declaration, it is well-placed to spell out legislation applicable to markets everywhere, says Rajagopal Menon, Vice President, WazirX.

“The industry is hoping to see some course correction and we are hoping the finance minister will spell out a roadmap, so I think in 2024, one can expect to see a lot of action on the regulatory front,” he adds.

The pain point, however, remains to be the 1% TDS. “Although the current tax norms reinforce the fact that the government is paying attention to crypto, it is still quite steep. Lesser taxes on capital gains and reduction of tds will increase participation and give rise to more innovation within the crypto and blockchain space,” says Pagidipati.

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A regulatory landmark: The FIU registration

While the implementation of a tax on crypto assets was a major landmark in the regulatory space, another was the requirement of companies who dealt with crypto to register with the Financial Intelligence Unit (FIU), which was set to begin in March 2023.

Reports suggest that about 28 companies in the country have so far signed up under the FIU. “I think there's been a lot of progress in terms of FIU registration and entities registered under FIU, we were the first one to do it…we think this is critical for any player in the space,” says Sumit Gupta, Co-founder and CEO of crypto exchange CoinDCX.

Per industry insiders who spoke with YourStory, signing up with the FIU could be seen as a sign of legitimacy and the fact that their business was genuine.

Companies are also ensuring transparency in their operations. Players like WazirX and CoinDCX have both undertaken the initiative to make public a proof of reserve—a document that shows the existing balances of the exchange, and any other related transactions it may have undertaken.

“We actively communicate with our customers through social channels, blogs and emails with the latest happenings in the market so that our customers can make investing decisions suitable to their needs and risk appetite. This constant communication, robust security, and transparency have helped us forge a strong trust with our customers,” says Pagidipati.

Emerging trends

“So 2024 will be about the experimentation of applications that are coming in, which are close to having near zero fees, infrastructure…now that the fees have gone down to near zero we have room for non-financial applications,” said Ghosh.

Similarly, the year is likely to see many more institutional buyers as well, per Pagidipti. “We could also see several traditional companies include crypto and blockchain in their businesses given that the crypto market is rapidly rising,” he said.

While 2023 was a year of battling the blues of the bear markets, the next year could bring some bright spots. For now, it will be wait and watch for Indian cryptocurrency exchanges.

Disclaimer: This story was updated to correct the spelling of a person quoted.