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Close to six months after India rolled out its crypto tax regime, market activity has fallen off the cliff in the country

Tokenised is your weekly read to navigate and mine the rich vein of crypto developments that flow through India and Southeast Asia. Someone sent you this? Sign up here

Good Evening [%first_name |Dear Reader%],

Welcome to this week’s edition of Tokenised.

Quite like the wardrobe in The Chronicles of Narnia, crypto exchanges exist on the boundary of the normal and the fantastical. It’s a nice and straightforward business model: everytime a user wants to cross over and play with tokens, the exchange collects a fee for facilitating that. 

While the global slump (or bloodbath) in crypto has hurt exchanges around the world, India’s tax regime has made the hurt worse for local exchanges and a few other crypto businesses. That’s what we’re looking at in this week’s edition. 

Let’s jump right in. 

A deep freeze rolls over

At its peak in October 2021, crypto exchange WazirX was facilitating about US$593 million worth of trades each day. On Monday, only US$3 million moved through the crypto bourse. 

In many ways, this captures all that has changed with the crypto landscape globally and closer to home. Retail crowds drawn in by zooming prices have quickly exited and a steady stream of bankruptcy-related headlines emerging in the sector (see Crispy Bytes below) do little to restore any faith. 

And WazirX isn’t alone in seeing a reduction in its trading volumes. Other exchanges like CoinDCX and BitBNS have also seen similar dips, according to data from CoinGecko. 

[WazirX Trading Volume (Source: CoinGecko)]

[CoinDCX Trading Volume (Source: CoinGecko)]

[BitBNS Trading Volume (Source: CoinGecko)]

We all thought the TDS would kill liquidity, but a lot of it dried up much before,” a senior executive at a crypto exchange told me. They added that exchanges being cut off from bank services and United Payments Interface (UPI) sealed the taps that were drying already due to the new tax regime. “TDS would be hard for market makers and traders, but who will you make a market for in India,” the executive added. 

NFT marketplaces and token-driven social media experiments seem to be having a harder time than exchanges. Chingari, a locally bred Tik Tok clone, had launched its token right around the time I started writing Tokenised in October 2021. This helped Chingari raise a bunch of money and ‘pivot to Web3’, but just last week, its price dropped 87% when someone unloaded a big bag of Gari on the market—worth about US$2 million before the drop in prices.

[Gari token price (Source: CoinGecko)]

This not only depreciated everyone’s Gari bags, but it also illustrates just how thin liquidity for such tokens can be. 

Industry executives, for their part, don’t see things improving anytime soon as well. “Most people know that there’s no dead cat bounce coming, unless some miracle changes things,” the founder of a crypto exchange said, adding that conditions are unlikely to improve in the next 12 to 18 months. 

While crypto enterprises are buoyed by the relatively late fundraises they managed before winter set in, they are also weighing how long their stash will last. Marketing expenses are being cut and exchanges are no longer vying for prime time ad spots, an executive at an advertising agency said.  

For now, a deep winter has rolled over Indian crypto enterprises. How long it, or they, will last is anyone’s guess. But for the first time in a couple of years, their optimism is waning as well and the ‘We’re All Gonna Make It’ (WAGMI) battle cry doesn’t sound as convincing as it used to. 

With that, let’s turn to some other things that happened in crypto over the last few days:

Crispy bytes

  • Crypto lender Voyager Digital has filed for bankruptcy as the slump in crypto markets deepens. [Financial Times]
  • Crypto hedge fund Three Arrows Capital has filed for bankruptcy in the United States. [Financial Times]
  • Meta is pulling the plug on its crypto wallet project. [TechCrunch]
  • Leading Japanese brokerages Nomura Holdings and SBI Holdings have plans to launch digital token operations later this year. [Nikkei Asia]
  • The semiconductor chip boom is losing steam as slowing demand for personal computers and a rout in crypto markets eases pressures. [The Wall Street Journal]
  • DeFi lender Teller is merging two fads by enabling Buy Now Pay Later (BNPL) services for buying NFTs. [Bloomberg]
  • Binance appears to have served crypto traders in Iran, despite US sanctions prohibiting such activity. [Reuters]
  • Indian regulators are probing alleged violations of foreign exchange laws by local crypto exchanges. [The Economic Times]

Back of the envelope

Staking – Put simply, staking allows crypto asset holders to earn income from them by locking them up with a protocol or a lending/borrowing marketplace. 

Upside – It’s an easy way to earn income on something you already own and often powers the eye-popping yields (think 15% or higher) crypto platforms promise. 

Downside – Risks associated with staking range from market fluctuations to theft, but the most prominent one can be market liquidity. If the obscure token you’re locking up to earn mega yields has no market depth, you’ll be left holding the bag in Hotel California. 

What caught my eye this week

As someone who has always been bad at social media, I have never claimed to understand how the world of influencing works. But marketing staking returns promised by crypto exchanges as “fixed deposits” is certainly up there in the list of things I would caution against doing. 

While exchanges like Vauld have long claimed that money deposited with them is ‘safe’, just last week Vauld halted all customer withdrawals citing adverse market conditions. In a blog post on 4 July, the firm said that it has faced customer withdrawals worth close to US$200 million since 12 June. Vauld has since signed a acquisition term sheet with Nexo, a crypto lender, that could lead to Nexo fully owning Vauld, pending a 60 day due diligence period. 

While exchanges typically lend customer deposits to institutional investors (finance talk for big money clients) and earn the spread between the interest they charge them and pay to customers, the current blowup in crypto land has also revealed that many of them have played fast and loose with risk management. In some instances, the middlemen have also lent the assets to hedge funds that took on a little too much leverage and blew up once the chickens came home to roost. 

Like in all things finance, playing with borrowed money has burnt a few hands this downcycle. But the takeaway seems to be that if you can’t really understand—or an ‘influencer’ can’t distinctly explain—where a yield comes from, you’re better off tucking the tokens under your mattress.

That’s all for this week’s edition. If you have any overarching thoughts (or even nitpicky ones) about this newsletter, please do write to me at [email protected].

I’ll see you again next week. Take care!


Jaspreet Kalra

This newsletter has been discontinued. But you can read The Stack which includes our newsletters around cleantech, fintech, personal finance and e-commerce in India!