India digital asset exchange is likely to seek consolidation in 2025, with smaller exchanges either shutting down operations or merging with larger ones due to the country’s punitive taxation regime.
The government has long treated digital assets with suspicion, so far imposing one of the harshest taxes in 2022 –30% flat tax on all digital currency income without provision for losses in a 1% tax deducted at source (TDS) on all transactions above Rs 10,000 ($118). This is likely to result in a loss of approximately $1.2 trillion in trading volume on domestic exchanges over the years, a to study from the Esya Center, an Indian policy think tank, claimed.
Seychelles-headquartered OKX, the second largest global digital asset exchange by trading volume, to close its India operations in 2024, citing regulatory hurdles. Domestic exchanges were, however more and more compliant with new regulatory requirements. At the same time there were exchanges request the government to establish a level playing field for virtual digital assets (VDAs). The requests include reducing TDS from 1% to 0.01%, allowing equalization and carry-forward of losses, and treating income from digital assets at par with other capital assets.
“Crypto taxes that are high is an issue, but the main disadvantage and the most concerning aspect is that there is no provision to compensate losses. This is extremely unfair, especially for small investors,” said Avinash ShekharCo-founder and chief executive of Pi42, a digital currency derivatives platform.
“While this issue might have minimal impact during a bull market with growing trading volume, the real concern arises during a bear market. Without the ability to offset losses, traders must take money out of their own pockets to pay taxes, even if they are at a total loss.This discourages crypto traders and could lead to a decline in trading activity, ultimately reducing the trading volume on the exchange discourage, and it is against ‘Make in India’. This situation poses a serious problem,” Shekhar told CoinGeek.
“As many countries support crypto and implement crypto-friendly regulations, we urge the Indian government, on behalf of everyday crypto traders and investors, to at least introduce the option to compensate for losses,” the Shekhar added.
But the requests have so far fallen on deaf ears. While the economy is looking to regulate the digital asset space, Finance Minister Nirmala Sitharaman said in March that “crypto-currencies” are not legal tender in India.
Moreover, in December, India informed that there is no fixed timeline for introducing a comprehensive regulatory guideline for VDAs in the country. As a result, the legal status of digital currency continues to be in limbo, with no specific legislation governing digital currency-based businesses in the country.
Consolidation, mergers, and closings
“Crypto taxes are likely to drive consolidation among exchanges, with smaller platforms merging with larger ones or shutting down due to declining trading volumes and operational pressures,” he pointed out. Amit Kumar Guptaa legal practitioner at the Supreme Court of India.
“High-volume and innovative exchanges that offer services such as DeFi (decentralized finance), staking, or institutional trading can weather the storm by adapting to niche markets and using scale. Despite industry calls for tax relief, there are no political changes predicted, leaving exchanges to navigate a challenging regulatory environment while advocating for long-term reforms,” Gupta told CoinGeek.
“In 2025, expect increased consolidation as dominant players acquire smaller exchanges to expand user bases and streamline compliance with strict regulations. Successful exchanges will prioritize innovative offerings such as tokenized assets, cross-border solutions, and staking services to attract users and the ‘To maintain profitability,’ Gupta added.
Distrust in traditional banking systems
According to one September 2024 report of Chainalysis, India is the world leader in digital asset adoptionmaintains its position at the top of the global ranking for the second consecutive year.
The nation’s growing interest in digital currencies is driven by a desire for financial inclusion and a distrust of traditional banking systems, according to Statista.
Uday Kotak, the founder of India’s third largest private bank, Kotak Mahindra, marked digital currency as an “alternative market currency” and a necessary counter-hedge for governments worldwide that misbehave over long periods and are irresponsible on the fiscal or monetary side.
“With India maintaining its strict crypto tax policy, consolidation in the exchange sector seems inevitable. Small exchanges struggling with low margins may seek mergers or acquisitions to stay afloat,” said Rohan SharanFounder and chief executive of Timechain Labsan on-chain application development company used BSV blockchain Technology.
“We may witness some high-volume exchanges dominating the market, while others are closed due to regulatory pressure and decline in user engagement. Unless the government revises taxes or introduces progressive regulations, innovation in the crypto exchange space may stagnate . However, blockchain utility platforms that offer services beyond just trading can thrive in these challenges,” CoinGeek’s Sharan said.
Sharan, for example, is looking for tokenize real-world assets (RWAs) like mutual funds instead of focusing on digital currencies. According to him, most payment aggregators in India have shied away from digital assets due to the concerns of the Reserve Bank of India (RBI) about digital currencies.
According to Rohit Jain, Chief Strategy and Investment Officer of CoinDCX, India’s first digital currency unicornConsolidation in the digital asset industry can be highly beneficial, as smaller players often face challenges with operational efficiency.
“We remain focused on strategic opportunities, as evidenced by our recent acquisition of BitOasis in the Middle East. While we have built many innovations in India, our vision is global. We aim to deploy these capabilities globally and are actively working in that direction,” Jain told CoinGeek.
In July 2024, CoinDCX has the BSV token to trade on its platform, allowing users more ways to buy, sell and sell Trade BSV. With CoinDCX’s close to 15 million registered users, the listing marks a significant expansion into the Indian market for BSV and demonstrates its Potential and opportunity in the region.
High trading volume as a temporary solution
2024 marks the historic rise of Bitcoin to $100,000. Donald Trump, the first AmericaCrypto President,’ committed to turning the world’s largest economy into a ‘crypto-capital’ with plans to integrate bitcoin into national reserves, leading to a significant boom in digital asset prices and trading volumes worldwide.
India’s digital asset exchanges, which have experienced a 90% drop in volume since the 1% TDS levy, have reported Witness five times higher trading volume after Trump’s victory.
“While high trading volumes may temporarily sustain some exchanges, without significant tax reform or regulatory clarity, the industry may see reduced competition and innovation as companies struggle under financial pressure from tax policy.” Sharat ChandraFounder of EmpowerEdge Ventures and a Startup enabler, said CoinGeek.
“With high crypto taxes persisting, consolidation among crypto exchanges in India is likely. Many exchanges face challenges due to steep trading taxes, which could lead some smaller players to shut down or merge with larger entities looking to gain market share maintain,” Chandra added.
Global exchanges can exploit the gap
India reported has around 2 crore (20 million) digital asset users with majority in the 18 to 35 age group.
“The current high taxation on cryptocurrency in India is literally pushing the country’s crypto exchanges into challenging waters. Many exchanges have faced a decline in their user base and are struggling to maintain profitability. In addition, several payment providers have cut ties with crypto exchanges due to the stricter regulations, which further weakens the ecosystem,” said. Raj KapoorFounder of India Blockchain Alliance (IBA).
“Given these circumstances, there is a high probability of consolidation in the Indian crypto exchange industry. Small exchanges that are unable to cope with compliance costs or reduced volumes may merge with larger players or shut down completely. The higher taxes discourage innovation and new investments, making it difficult for exchanges to differentiate themselves or scale effectively,” Kapoor told CoinGeek.
“On the other hand, global exchanges may look to exploit the gap by offering services without the same tax burden. This could lead to a further decline in the market share of Indian exchanges, forcing them to adopt cost-cutting strategies or seek mergers, ” added Kapoor.
According to the Esya Center to studyas much as $3.85 billion has moved into overseas digital asset trading exchanges as traders look to punish taxes in India.
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