The current remarkable surge in Bitcoin prices has sparked a pertinent question amongst Bitcoin traders: Will this pattern change the fortunes of Indian cryptocurrency firms?

The nation’s cryptocurrency exchanges are witnessing a considerable burst in demand, pushed by the current skyrocketing of Bitcoin prices to unprecedented highs.

The Indian cryptocurrency platform CoinDCX, as an example, has reported a major five-fold enhance in buying and selling volumes over the previous month.

“Specifically, our spot trading volume, which began around $5 million at the beginning of February, rose to approximately $25 million by February 28,” says Sumit Gupta, co-founder of CoinDCX.

“The recent surge in Bitcoin’s value has undeniably ignited a wave of enthusiasm and confidence.”

Meanwhile, India’s largest cryptocurrency trade, WazirX, which is predicated in Mumbai, can be experiencing vital development in cryptocurrency transactions.

“My servers are humming at overcapacity,” says Rajagopal Menon, vp, WazirX, which has skilled a 20-fold enhance in buying and selling volumes for the reason that starting of the 12 months.

“My new users are up, my daily traffic is up. So, the long and short of it is that it is a function of sentiment – the moment price goes up, it’s herd mentality and everyone wants to buy. So, we are definitely seeing an uptick in people wanting to buy their favourite crypto.”

Tax burden

Despite the rise in investor curiosity, volumes are nonetheless down from their peaks as crypto exchanges are burdened by heavy taxes imposed by the nation.

In 2022, India imposed a 30 per cent tax on income from cryptocurrencies, in addition to a 1 per cent tax on all transactions of the digital property.

While “there is no dearth of people” desirous to spend money on cryptocurrencies, Mr Menon says, that “retail investments have not reached the peak that we saw in 2021”.

This growth coincides with the rising apprehensions expressed by Indian authorities concerning cryptocurrency buying and selling. The dangers related to it, coupled with fears of potential misuse for illicit actions like cash laundering, have raised considerations.

There’s additionally a fear that it may pose a menace to the soundness of the nation’s monetary system.

These considerations resonate with quite a few nations worldwide, together with India. The Indian authorities are certainly wrestling with the problem of tips on how to regulate these property, particularly contemplating their sustained reputation.

Bitcoin, the most important cryptocurrency, has risen by virtually 54 per cent year-to-date to over $68,000 as of Friday night. This was decrease than the brand new all-time excessive it reached on Thursday of $73,803, which dived additional all the way down to about $65,000 on Sunday.

The rise of Bitcoin has been pushed by numerous elements, reminiscent of inflows into US spot exchange-traded crypto merchandise and the expectation of worldwide rates of interest falling. This usually leads merchants to redirect capital into dangerous property.

Investor curiosity in cryptocurrencies has grown following the approval of 11 spot Bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission in late January.

The Bitcoin “halving” occasion is anticipated to happen in April, leading to a discount within the price at which new cash are generated. Historically, these occasions have led to a rise within the worth of the cryptocurrency.

Indian exchanges are happy to witness a resurgence in investor demand, after a difficult interval for the sector.

“We’ve witnessed a remarkable 150 per cent increase in spot market trading volume,” says Mr Gupta. “This surge in demand for Bitcoin is fuelled by the launch of Bitcoin ETFs, signalling a maturing market.”

The development pattern isn’t restricted to Bitcoin.

The firm has seen “significant growth across large-cap cryptocurrencies like Ethereum, Solana, Shiba Inu, and Binance Coin”, says Mr Gupta.

The rise in demand “isn’t just confined to retail investors – we’ve also seen a notable increase in engagement from high-net-worth individuals and institutional investors”.

Regulation catch-up

However, regardless of the renewed curiosity in digital property, exchanges are reporting that the present tax regime continues to dampen investor urge for food.

“Changes in India’s regulatory landscape, including a new tax regime, have influenced the cryptocurrency appetite,” says Pranav Srivan Elankovan, founding father of Crypfi, a cryptocurrency trade.

“The introduction of taxes and regulatory uncertainties has prompted investors to adopt a more cautious approach, potentially dampening demand.”

The taxes in 2022 have had an infinite impression on the business, Mr Menon says.

“The moment this happened, [crypto investors] stopped trading in India,” he says.

“They fled to exchanges abroad, because crypto knows no boundaries. So, you had a lot of foreign exchanges or offshore exchanges benefiting from Indian customers actually shifting the capital abroad.

“Our volumes were down by 90 per cent in the bear markets”, by the top of 2022 and final 12 months, he says.

However, he provides that the “Indian government has taken a very serious view of offshore exchanges not complying with Indian laws” and is taking steps to stop Indian residents from buying and selling cryptocurrencies on them, thereby benefiting Indian exchanges.

In January, India blocked entry to the web sites of main international cryptocurrency exchanges after issuing notices to them for not complying with the nation’s cash laundering legal guidelines.

Furthermore, regardless of the excessive 30 per cent tax price, it’s broadly accepted throughout the business that this serves as a transparent indication that the federal government acknowledges cryptocurrencies as a official type of funding. Speculation had lengthy persevered that India would impose a ban on cryptocurrencies.

“Sustained demand hinges on ongoing regulatory clarity and the confidence of investors in the Indian cryptocurrency market,” says Mr Elankovan.

Sidharth Sogani, the founder and chief government of the cryptocurrency analysis agency Crebaco, made the choice to relocate from India to Dubai three years in the past. He cited the UAE’s extra “robust and open-minded” method to the cryptocurrency market as a key think about his resolution.

He states that regardless of the Bitcoin rally, Indian cryptocurrency exchanges are nonetheless at a drawback.

“Volumes have not reached the previous bull cycles we observed in 2021, when the market had a way higher volume, and exchanges were more aggressive and they were advertising a lot,” says Mr Sogani.

He asserts that regulation is of paramount significance.

“India is not a regulated market for crypto. It is legal, but it’s not regulated – they are two different things,” says Mr Sogani.

“When you say regulation, that means the regulatory body is responsible for all the market exchanges to report in a certain manner and that regulatory body does not exist yet. Once it does exist, there will be a different market for India.”

The exchanges have expressed their openness and readiness to embrace a regulatory framework.

“We want clear guidelines,” says Mr Menon. “For example, it’s very difficult, even now, for Indian crypto companies to get reliable banking connections.”

But he believes “a change is on the horizon”. This perception stems from India’s current actions underneath its G20 presidency, which along with different member nations, embraced a strategic plan to ensure a synchronised execution of a coverage framework for crypto property.

“We are hopeful that regulation will make the [cryptocurrency] industry a better place to be in and things would be much better in the coming years for India,” says Mr Menon.

Updated: March 18, 2024, 5:30 AM