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After aggressively spending to promote cryptocurrency buying in the last year, bruised cryptocurrency exchanges in India are now pushing offerings such as systematic investment plans (SIPs), loans and futures trading, hoping that these long-term products will attract more retail investors.
The shift in focus from intraday and short-term trading comes amid new taxation rules and plunging valuations of cryptocurrency tokens, which led to trading volumes plummeting on the exchanges.
An estimated 85-90 percent of trading volumes on top crypto exchanges such as WazirX, Zebpay, CoinDCX and Bitbns was wiped out between January 1 and July 14, according to data from CREBACO Global.
A key reason for this was the introduction of 1 percent tax deducted at source (TDS) on virtual digital asset transactions in India from July 1, even as risk-averse investors started pulling back from crypto globally.
Cryptocurrency exchanges and startups now see an opportunity to promote existing crypto products such as loans, SIPs, derivatives, and even fixed deposits, which suit longer-term investors.
Bitbns and WeTrade, two such exchanges, even introduced new offerings to help investors work around TDS costs while continuing to invest in cryptocurrencies.
The widespread concern among intraday traders over the 1 percent TDS charged on transactions above Rs 10,000 is that a good amount of their capital will get locked up in the cycle on a day-to-day basis. Such traders can claim these amounts only when they file their tax returns. Additionally, any gains from crypto trading will attract 30 percent income tax.
Bitbns introduced an SIP scheme in mid-July, marketing it around ‘zero TDS’ and letting users invest as little as Rs 75. Bitbns already offers a derivatives platform and fixed deposit plans with annual percentage yields ranging from 8 percent to 40 percent. APY is the compounded annual returns on crypto investments.
“With the trading volume crashes we saw recently, from here on crypto exchanges will tread different paths. Of course, the times are tough for the industry but I believe we have almost bottomed out,” Gaurav Dahake, founder of Bitbns, told Moneycontrol. “This is a good time to start an SIP for users. Given the lower prices of tokens, this can over time give significant returns.”
Unocoin was an early mover in providing alternative crypto investment options. It started SIPs back in 2014 and loans in 2018. It has over 2.3 million users across these two offerings.
“Other exchanges were significantly into intraday trading and short-term trading. In comparison, Unocoin is looking at retail investors who will stay invested for a few quarters to a few years – that’s how we have positioned our brand,” Sathvik Vishwanath, cofounder of Unocoin, told Moneycontrol. “For us, TDS will not be of strong impact as investors are trading 3-5 times a year. The customers we have are more into medium-term to long-term investing.”
CoinSwitch and CoinDCX already offer SIPs and CoinDCX also has a futures (derivatives) trading platform.
WeTrade, a recently launched Bengaluru-based startup, went a step ahead when TDS came into effect, offering 1 percent cashback on every investment, zero trading fees, and an additional 1 percent cashback on every sell, with a maximum limit of Rs 1,000 cashback per month.
WeTrade founder Prashant Kumar said, “We have waived all transaction charges and pay for the TDS incurred to ensure the customer journey is seamless. Our exclusive rewards include an NFT on sign-ups and an additional 1 percent cashback on every coin purchase.”
Shifting focus
While one can question the sustainability of cashbacks, Cashaa, a B2B banking-like services provider to most crypto exchanges in India, said that by building enough cashflow in the backend, exchanges can easily offer this benefit.
“When exchanges hold their reserves with Cashaa, they attract interest on those assets. For institutional investors, we were giving 7 to 8 percent annual interest on Bitcoin deposits. They (exchanges) can use this money to give cashbacks or even interest,” said Kumar Gaurav, founder of London-based Cashaa.
Gaurav said this is also when crypto lending will take off as many investors would have held their Bitcoins instead of selling them at low valuations.
“In the next six months, you will see we will have at least 10 startups doing that. This is a product which actually goes much better in the bear market than the bull market,” Gaurav said. “Right now, there will be many people stuck with their cryptocurrencies which they don’t want to sell cheap but need cash, so they can instead borrow against it. However, there aren’t many crypto lending offerings in India, which makes it a massive opportunity.”
Unocoin’s Vishwanath explained that crypto lending would be similar to gold loans, where money is lent based on a loan-to-value ratio, a metric to calculate the amount to be advanced against the value of the mortgaged asset, which, in this case are highly volatile crypto tokens.
Crypto loans will also depend on the type of tokens pledged. For stronger tokens like Bitcoin, the loan to value ratio will be about 60 percent, while for other tokens it could be 35-40 percent.
Experts said that with such options during conditions like this, the time may be ripe for new entrants to get into the crypto market for the long haul.
“I see a new set of people coming in. A bear market is the best time to enter the market,” a senior executive from one of the top exchanges told Moneycontrol on condition of anonymity. “People are now going to come in with a long-term perspective into crypto. I know a lot of people who were sceptical about crypto earlier are now looking to enter the market, and also a lot of institutions.”
Regulatory Haze
Yet, as promising as these products appear, one cannot ignore the absence of a regulatory framework for the crypto sector. In the traditional equity markets and the banking sector, products such as mutual funds, SIPs and lending are highly regulated and controlled by entities such as the Securities and Exchange Board of India and the Reserve Bank of India.
A surge in alternative crypto offerings could also draw the scrutiny of the RBI, which has a strong anti-crypto stance. Finance minister Nirmala Sitharaman said on July 18 the RBI had recommended that the government completely ban cryptocurrencies.
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