Exchanges Struggle As Crypto Winter Sets In Following Sharp Price Drop

Cryptocurrencies that were the taste of the season until about last year saw a sudden drop on every matrix for exchanges – trading volumes, value and profitability – as a crypto winter sets in after a sharp decline in prices in recent months.

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

Exchanges have seen drastic declines in revenue and margins — up to 80% and 60%, respectively, from a few months ago, according to industry trackers.

The tough times may not be over yet, as India plans to roll out the new TDS (withholding tax) regime on July 1, which will impact the cost of purchasing crypto assets.

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

From cutting jobs and reducing the number of coins traded on platforms, to cutting marketing spend and moving to cheaper offices, exchanges are trying everything.

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“Like any exchange, volumes drive margins and since April volumes have fallen 50-60% which has been reflected in our margins. We have been careful in assessing risk and planning our capital to provide a long trail that can propel us through the crypto winter,” Shetty said.

People familiar with the matter said that at the height of the crypto boom until November 2021, major exchanges were spending around Rs 5 crore per month to acquire customers.

The global bear market, along with India’s introduction of a 30% tax on crypto returns, led most Indian investors to either exit or hold their positions.

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

“As crypto exchanges across the globe bear the brunt of the bearish phase, the impact on Indian exchanges is even more due to tax implications and regulatory uncertainties. After our recent relaunch in India, we planned to accelerate our customer acquisition processes, but we have put marketing spend on hold until we understand the impact of 1% TDS from July 1 and how brokers and market makers run it,” said Praveen Kumar, CEO of Belfrics Global, a cryptocurrency exchange.

Industry trackers are also concerned about the impact of TDS on liquidity and the spread of trading volumes on Indian exchanges.

Cryptocurrency players’ order books are set to be strained as investors may struggle to buy or sell such assets, with tax complications potentially driving market makers away, they said.

With the 1% TDS on every crypto trade, liquidity providers need to provide greater float, industry trackers have said.

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Exchanges Struggle As Crypto Winter Sets In Following Sharp Price Drop


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