By Mohammed Roshan
To say 2022 has been a turbulent year for the global market would be quite generous. This has been one of the worst years in crypto history thus far.
Coming off all-time highs in the year before, a negative macroenvironment and crash in crypto prices led to sell-offs, hacks, implosions and bankruptcies of popular names – 2022 was quite a year. The euphoria of the previous year has been long forgotten, and has been replaced with negativity and cautiousness.
However, in spite of popular media narratives that have declared the death of crypto, all is not doom and gloom. There were events that reinstated faith in the industry, like the growing adoption of Bitcoin as well as war donations in crypto, and crypto integrations across the world.
Coming to India, the market situation has been similar. However, the impact of local incidents have played a significant part just as much as global developments.
For the Indian crypto market, the most significant came in April of this year when the new crypto tax regime was introduced. Since this, there was a significant drop in trading volumes of Indian crypto exchanges and what is believed to be an exodus to global exchanges.
Throughout the year, there were also constant investigations and search operations by the Enforcement Directorate around alleged financial irregularities and violation of laws in almost all of the major crypto exchanges in the country. Quite understandably, this did worry both retail and institutional investors.
The abrupt exit of Coinbase, one of the largest US-based crypto exchange, within a few days of its India launch and the Binance-WazirX merger-demerger also send out worrying messages to investors.
However, without a doubt, it has been India’s harsh tax policies that have done the most damage on the market.
The mandates mentioned in the regime include:
- 30% taxation on profits from crypto transactions.
- Investors cannot offset the gains from one crypto against losses from another to claim tax benefits.
- 1% TDS to be deducted for all crypto transactions.
In the immediate aftermath of the news, exchanges also saw a massive drop in daily transactions. Weirdly, they are still not recognised as an asset class, but income from the same falls under the highest tax bracket. While investors hope this will change in the near future, at present crypto companies at home are weathering a more turbulent storm than the West amidst the “crypto winter”.
Incidents like the Terra-Luna crash, FTX collapse and much closer to home – the Vauld bankruptcy – have exposed the dark side of the global crypto giants.
Amidst all of these, the industry also has had to face a funding crunch. As a result, several crypto companies reduced headcounts and reassessed their hiring plans while others put a stop to their advertising and a cap on their immediate growth plans to try and survive the situation.
Investors in the sector are playing a wait-and-watch game amidst regulatory uncertainties, strict tax norms and ongoing government probes.
Another effect that has been seen is the ongoing “brain drain” of companies, HNIs and entrepreneurs of the sector to more favourable jurisdictions. Reportedly, several startups and founders have already shifted their bases to Dubai, Singapore and other countries.
It is unfortunate that inspite of having a large market, India doesn’t look to be considered a good choice as a crypto hub.
However, seasoned investors in crypto know and understand that 2022 is significant as we saw the Indian government recognizing crypto for the first time ever, by defining them under virtual digital assets. While the taxes are definitely a negative, this move has given some degree of legitimacy to the industry.
Downturns and crashes are not new in crypto, and while it can’t be said for all of crypto, fundamentally strong assets like Bitcoin have had a history of survival.
While there are those that think the crashes have had a negative impact on the industry, there is reason for optimism that these will drive the industry in a better direction
For example, already there has been greater demand for operational transparency and consumer protection from crypto companies.
The market is expected to get back on track soon. Bear markets have historically been a great time for building and innovating. The crypto sector still in its infancy can move to a sustainable path only if it continues to drive innovation. Hopefully, we get to see much more of that in 2023 – both in India and globally.
While 2022 might currently look like the worst year in crypto history, I believe in retrospect it would perhaps be the most eye-opening year we have had in a while.
The author is co-founder and CEO, GoSats