Three exchanges – ZebPay, WazirX as well as CoinDCX – According to CoinGecko, daily trading volume dropped by 60-87% just after the 1% withholding tax deduction went into effect on July 1st. The fourth, Giottus, fell 70%, according to its chief executive.
These sharp drops were fueled by already low levels of trading as a combination of falling prices, an unfavorable tax regime and difficulty getting cash to exchanges combined to dampen a once-hot market.
For example, Binance-backed WazirX traded $3.8 million on July 2, the day after the tax, known by its acronym TDS, went into effect, data from CoinGecko shows. In early July last year, it would have taken less than two hours of trading to reach that mark. (Crypto exchanges trade 24 hours a day, seven days a week).
While long-term cryptocurrency holders are still buying and selling, market makers and high-frequency traders have “gone,” said WazirX VP Rajagopal Menon. Traders are also doing more peer-to-peer trading and moving to so-called decentralized exchanges, he said.
In February, the government introduced a tax regime for digital assets, consisting of TDS and a 30% flat tax on cryptocurrency investment income. It also prohibited the offsetting of losses on such assets, treating them differently from stocks and bonds.
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