How Indian crypto companies are adapting to the market decline

By Mohammed Roshan

It has been a hot year for cryptocurrencies. The decline in the prices of Bitcoin and other cryptocurrencies from the highs reached at the end of last year, combined with the fall of several major players in the sector, has led to what has been described as yet another “cryptocurrency winter”.

India’s crypto ecosystem has not been unaffected during this difficult period. It is truly a struggle for existence for several players with declining transaction volumes, an ongoing regulatory vacuum, opposition from the RBI, money laundering allegations against exchanges – all of which have occurred during the global cryptocurrency winter.

Indian crypto firms were already struggling with new tax rules introduced earlier this year, which included a 30% tax on income and a 1% TDS on all transactions. These new rules have significantly dampened sentiment among investors, especially traders and this has had an aftereffect on Indian cryptocurrency exchanges as well as other companies. Major cryptocurrency exchanges in India, used to earn millions of dollars in revenue due to high trading volumes, have seen a dramatic decline in trading volume, which has been exacerbated by the overall market downturn.

Amid these conditions, reports show that investment in crypto startups has shrunk by 75% in 2022. While this has to do with global events and the general slowdown in tech VC funding, it is largely due to the recent events in cryptocurrencies and india government dislike of cryptocurrencies. This has had huge implications for Indian crypto companies, which are mostly venture-funded.

In this struggle for survival, cryptocurrency companies in India have had to overhaul their business strategies and go lean.
To maintain a longer runway, several companies have taken extreme measures such as cutting back on all marketing and advertising expenses. There is a focus on frugality in terms of every other expense, as founders race frantically to make sure their companies are well capitalized to survive this scenario.

We’ve already seen several companies put hiring plans on hold and some even lay off a portion of their workforce or cancel offers to hire that had been made. The companies that are hiring have taken a very cautious approach. Product launches and new investments have also been delayed. There are also unverified reports that some crypto firms have moved operations out of India to more crypto-friendly jurisdictions.

Some cryptocurrency companies, especially exchanges, have diversified into alternative revenue streams, tapping into potential adjacencies. For example, CoinDCX has launched a venture investment arm that invests in startups in the Web3 infrastructure space. Meanwhile Coinswitch Kuber aims to become a larger retail investment platform, with other asset class options like mutual funds and US stocks on its app. Looking at alternative business models and revenue streams could also potentially be a way for crypto firms to generate cash in this critical scenario

One of the major challenges for businesses is to restore customer trust in cryptocurrencies. In the prevailing negative environment, we have seen the emergence of several major exchanges reassuring their users about the safekeeping of funds, its use, and have implemented new protocols to ensure that client funds are safe and that there is transparency and communication between the various stakeholders who are involved.

At the same time, this can also be seen as a wonderful time for the Indian cryptocurrency industry to put its head down and build for the future, with minimal distractions. Even in the previous bear market, we saw how it was the builders who managed to survive the recession who reaped the benefits of the bull market.

In part it has already begun. For example, with the emergence of changes in cryptocurrency investment patterns, companies have also been quick to follow these trends. There has been a shift to sticking only to stablecoins like Bitcoin, rather than trading. To capitalize on this, several exchanges have come up with offers such as trading fee discounts and products that allow users to have SIP in these assets.

There have also been others who have devised or collaborated with self-custody solutions, encouraging users to keep their Bitcoins and other assets safe in hardware wallets. Industry and market conditions have changed dramatically this year, and lean cryptocurrency companies that continue to build and add value to customers will continue to survive going forward.

The author is co-founder and CEO of GoSats

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