Exchanges Struggling as Crypto Winter Begins Following Huge Price Drop

The cryptocurrencies that were the flavor of the season until roughly last year have seen a sudden drop in every matrix of exchanges (trading volumes, value, and profitability) as a crypto winter kicks in following a huge drop in prices in the last months.

The sudden shift in market sentiment from exuberance to fear has prompted exchanges to resort to a mix of short-term and long-term measures to manage working capital.

Exchanges have seen a drastic drop in revenue and margins, by as much as 80% and 60%, respectively, compared to a few months ago, according to industry trackers.

The tough times may not be over yet as India looks to implement the new TDS (taxes deducted at source) regime on July 1, which will affect the cost of buying crypto assets.

“There has been a significant drop in Indian cryptocurrency exchanges and we have witnessed around 70-80% drop in daily transactions year over year,” said Nischal Shetty, co-founder and CEO of WazirX, a cryptocurrency exchange. .

From cutting jobs, to reducing the number of coins traded on platforms, to cutting marketing expenses, to moving to cheaper offices, exchanges are trying it all.

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“Like any exchange, volumes rule margins and since April, volumes are down 50-60%, which has been reflected in our margins. We have been prudent in risk assessment and planning our capital to provide a long runway that can get us through the crypto winter,” Shetty said.

People privy to the matter said that at the peak of the cryptocurrency boom until November 2021, large exchanges were spending around Rs 5 crore per month to acquire customers.

The global bear market, coupled with India’s introduction of a 30% tax on cryptocurrency returns, has resulted in most investors in India exiting or holding onto their positions.

Some of the exchanges looking to enter India or expand in the country are also now holding onto cash until more clarity emerges.

“While crypto exchanges around the world are bearing the brunt of the bear phase, the impact on Indian exchanges is further due to tax implications and regulatory uncertainties. After our recent relaunch in India, we planned to speed up our client acquisition processes, but have put marketing spend on hold until we find out the impact of the 1% TDS from July 1 and how brokers and market makers manage it ”. said Praveen Kumar, CEO of Belfrics Global, a cryptocurrency exchange.

Industry trackers are also fearful of how TDS is set to affect the liquidity and distribution of trading volumes on Indian exchanges.

Cryptocurrency players’ order books will come under pressure as investors could find it difficult to buy or sell such assets with tax complications possibly keeping market makers away, they said.

With the 1% TDS on each crypto transaction, liquidity providers have to provide a higher float, industry trackers said.

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