The cryptocurrency ecosystem in India is going through a churn.

On one hand, investor interest in the asset class is rising, with smaller towns and cities also actively embracing it along with high-net-worth individuals, on the other hand, taxation on the asset has not gone down well with stakeholders.

The recent budget too did not provide any relaxation on that front. Further, a recent cyber attack on one of the prominent exchanges has highlighted the need for investor protection.

Invezz spoke to Sumit Gupta, co-founder of CoinDCX, one of the leading crypto exchanges in India and the country’s first crypto unicorn, on a range of subjects- from the company’s plans of entering new geographies to encouraging new trends in Indian crypto and why India is poised to contribute significantly to the global Web3 sector. Edited excerpts:

Invezz: You recently expanded into the UAE with the acquisition of BitOasis. What other markets are within your sight for short- to medium-term expansion?

Our first international expansion was in the UAE, with BitOasis. We want to follow a progressive crypto-regulated market.

The UAE is a prime example of such a market, with clear and supportive regulations attracting many global companies. This sets a strong base for us to further expand into the GCC region.

Entry into Turkey, Southeast Asia, and Europe on the cards?

We are also evaluating other regions with progressive regulations, such as Turkey, Southeast Asia, and Europe.

Singapore has long been a leader in regulatory clarity, and Europe is quickly growing as a significant market.

While actively evaluating these regions, our primary focus remains on finding the right partners to collaborate with to ensure successful expansion.

Invezz: With many developed economies launching Bitcoin, and ETH ETFs, do you think India needs to revisit its stance on crypto now? What is the direction that the country should head in when it comes to regulation in the space?

The introduction of Bitcoin and Ethereum ETFs globally is a strong indicator of growing trust in this asset class.

In India, there’s a need to revisit the current stance on crypto, particularly concerning taxation.

We have proposed several changes to the government to make the taxation framework more conducive to growth. These include reducing the TDS rate under Section 194S(1) from 1% to 0.01% and aligning capital gains tax rates with the actual tax slab of the assessee.

These measures are crucial for the sustainability of the Virtual Assets industry in India and could position the country as a progressive jurisdiction for digital assets.

Such changes would encourage transactions through compliant platforms and foster a more balanced taxation framework.

Need to treat crypto assets similarly to equities

Treating crypto assets similarly to equities could unlock significant economic potential, as the industry can add $1.1 trillion to the country’s economy over the next decade.

Invezz: How has the company fared post the taxation on crypto earnings and the 1% TDS? Do you think it has had a larger impact on Indian sentiment for crypto?

The implementation of TDS and new taxation policies indeed led to a notable decrease in trading volumes, as many investors migrated to non-compliant platforms.

In late 2023, the Indian government blocked offshore exchanges that failed to comply with FIU IND regulations. In March 2023, the Government of India mandated that all exchanges register with the FIU and adhere to the Prevention of Money Laundering Act (PMLA) guidelines.

This helped compliant exchanges like CoinDCX. We’ve observed a gradual return of investors to compliant platforms.

However, still, a significant number of investors continue to trade on non-compliant platforms via P2P and VPN, exposing themselves to potential risks from anti-social elements. We are hopeful the government will address key issues in the Virtual Assets industry.

Invezz: How have trading volumes been for CoinDCX in the first half and what is your outlook for the second half of the year? Are there any interesting cues and insights you are picking up regarding investor interest on your platform, in terms of demographics and geographies?

In the first half of 2024, CoinDCX facilitated average quarterly trading volumes exceeding USD 840 million in spot trading.

We’ve observed several positive developments in the crypto space, such as the banning of non-FIU compliant crypto platforms in India and the approval of Bitcoin ETFs in the USA. This has driven significant investor interest.

Tier-2 Indian cities topping crypto adoption, average age of investors rise

Our platform attracts a diverse demographic, with a notable increase in interest from both younger and more mature investors, spanning various geographies.

Contrary to expectations, Tier-2 cities like Lucknow and Patna emerged as surprising leaders in crypto adoption. Jaipur, Indore, Bhubaneswar, and Ludhiana, breaking into the top 15, challenged the notion of major urban centres monopolizing the crypto investment space.

One of the most striking trends is the maturation of Indian crypto investors on CoinDCX platform. The average age rose from 25 in 2022 to 30 in 2023, attracting seasoned investors beyond the traditionally young demographic.

This shift indicates a growing understanding and acceptance of crypto as a legitimate investment.

We are glad to witness an increasing level of interest from high-net-worth individuals (HNIs) in crypto assets. CoinDCX has already onboarded over 100 institutional investors, more than 2,500 HNI clients, and serves over 25 family offices.

There is significant demand from this category of investors, which is why we have launched Prime Services. These investors seek long-term value and require specialized services.

Invezz: Binance and KuCoin are expected to make a re-entry into the Indian market. Will it be a challenge for you?

The introduction of more compliant exchanges will enhance trust among investors and stakeholders, benefiting the entire ecosystem.

WazirX cyber attack unlikely to impact market sentiment

Invezz: WazirX came under a significant cyber attack earlier this month. How has the incident impacted other crypto exchanges including CoinDCX? Have you used it as a cue to make any changes on the security front?

Crypto assets operate in a global context, and any single event is unlikely to significantly impact the market as a whole. At CoinDCX, it has been business as usual.

Our wallet security remains robust, and we are committed to maintaining the highest standards of protection for your investments. We ensure that 100% of customer funds are stored in cold wallets, minimizing the risk of cyber threats.

CoinDCX’s platform is ISO 27001 certified for security and is equipped with Multi-Party Computation (MPC), Two-Factor Authentication (2FA), and advanced encryption.

We undergo regular security and compliance audits to ensure our systems are up to date with the latest security protocols. Additionally, we provide real-time proof of reserves to ensure transparency and trust in our system.

Invezz: Bitcoin jumped to a 2-week high after Trump’s assassination bid. Do you think the US presidential elections will have a major role to play in shaping the crypto sentiment in the last quarter and year-end? What other events might influence the sentiment?

Certainly, the US, being a major stakeholder in the global economy, significantly impacts global economic policies, including those related to crypto.

The endorsement of crypto by US presidential hopefuls can positively influence investor sentiment, as we’ve seen with the approval of BTC ETF.

The Bitcoin ETFs have already set a positive narrative in the market, with over $50 billion invested in 10 newly launched Bitcoin ETFs so far.

Ethereum ETFs are already making much impact. Solana ETFs are also in the pipeline. The introduction of these ETFs is crucial as they attract institutional investors, bringing substantial capital and a long-term investment outlook to the market.

This trend contributes to market stability and accelerates the growth of the asset class. Events like these, along with other macroeconomic factors, will shape the crypto sentiment in the coming months.

Growing interest from HNIs, and institutional investors

Invezz: Your outlook on the growth of crypto in India.

Crypto assets are increasingly being accepted as an emerging asset class, with India leading in terms of adoption. A significant increase in adoption is expected over the next couple of years, especially among HNIs and institutional investors who have largely recognized this asset class.

A Bain study released in 2022 indicated that more than half of very-high- and ultra-high-net-worth individuals and nearly 40% of high-net-worth individuals globally plan to increase their allocation to alternatives over the next three years, beyond conventional investments.

This trend is driven by the desire for improved diversification and higher returns.

With crypto assets receiving validation following the approval of Bitcoin and Ethereum ETFs by the U.S. Securities and Exchange Commission (SEC), institutional participation and interest in crypto have surged.

Crypto assets like Bitcoin and Ethereum are now recognized as ‘investable assets,’ with their decentralized nature providing a hedge against inflation, geopolitical tensions, and other factors impacting economies.

With regards to Web3, the quality of projects built in India has significantly improved, with entrants motivated by long-term goals rather than short-term hype.

There is a growing interest in building applications and exploring non-financial use cases like tokenization.

With global regulations shaping up positively, we expect a surge in solutions addressing usability, as the infrastructure and scalability challenges have already been resolved.

As of 2023, India is home to over 900 Web3 startups, with five achieving unicorn status.

The Web3 sector is projected to contribute $1.1 trillion to India’s GDP by 2032. India is a global leader in grassroots crypto adoption, ranking in the top five across various categories.

As of 2023, 11% of the global Web3 developer pool is based in India, and the country’s talent pool in the blockchain industry is expected to grow by over 120% in the next 1-2 years.

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