Indian CoinSwitch Exchange Looks To Non-Crypto To Survive Freeze, Government Hostility

Since April last year, the Indian government imposed a flat tax of 30% on all cryptocurrency revenues and then imposed a 1% deduction at source (TDS) on transactions exceeding 10,000 Indian rupees (122 USD). ). If that weren’t enough, cryptocurrency traders aren’t allowed to offset losses against gains elsewhere, and despite all the taxes, the government still hasn’t clarified the legal status of digital assets.

One response to these challenges by Indian cryptocurrency exchange CoinSwitch, which claimed to have over 19 million registered users, is to introduce its first range of non-crypto investment products.

forkastPradipta Mukherjee of met with Ashish Singhal, co-founder and CEO of CoinSwitch, about the exchange’s plans for 2023. The questions and answers have been edited for clarity and length.

Pradipta Mukherjee: Why is CoinSwitch introducing non-crypto products and what are they?

Ashish Singhal: We have seven new non-crypto products in our 2023 list, which includes fixed deposits, ETFs [exchange-traded funds]U.S. mutual funds, stocks, bonds, and stocks.

The aim is to be the one-stop technology destination for every Indian. As we diversify into other asset classes, we are experimenting with different business models to see which one is best for clients. There are multiple partnerships in place since we are rolling out such assets at scale on our platform.

Mukherjee: How does it work for a cryptocurrency exchange to introduce non-crypto products?

singhal: Our goal is to make products that make it easy for the average person to understand how and where to invest. While we will remain crypto-first, we are here to make investing easier for Indians.

We started with a mission to make equal money for everyone. Cryptocurrencies were the starting point for us, but we will continue to innovate to become a wealth technology platform. We see cryptocurrencies as an asset class offered alongside other assets, to help users build a diversified portfolio.

Mukherjee: How will the introduction of non-cryptographic products help CoinSwitch’s business under the current conditions?

singhal: Our plan to become a technology platform for wealth was laid out more than two years ago and we have consistently made progress on it. Whether it’s a bear market or a bull market, it won’t change our plans. We wanted to expand and give people a way to invest in all asset classes, starting with cryptocurrencies.

Mukherjee: How profitable is the non-crypto products business compared to the cryptocurrency trading business?

singhal: We are here to help India invest better. Today, less than 0.2% of India actually invests beyond fixed deposits. And what CoinSwitch wants to do is get to one hundred million users in the next four years who are actively investing.

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Image: Envato Elements

Many people are reluctant to invest, not because they lack funds, but rather because they lack the necessary knowledge. The biggest obstacle for most people right now is choosing the right investment asset based on their risk appetite. We believe that if we can streamline investments, the user engagement rate will grow significantly. Another aspect is imparting the right knowledge. An educated user is an informed investor. Therefore, it is important to provide the right information to help bridge the knowledge gap that could enable more Indians to invest and thereby build wealth.

Mukherjee: How much have CoinSwitch’s cryptocurrency trading volumes decreased since the introduction of Indian tax laws last year?

singhal: We do not disclose our volume data, but the introduction of cryptocurrency taxation has had an impact on overall trading volumes in the industry.

We welcome the government’s intention of traceability and taxability. However, the current structure needs to be refined in order to give fiscal policy a progressive character.

We have held regular discussions with stakeholders to help them realize the potential of our industry. They have been open to our views and I hope we will soon see some of them translate into reality.

Mukherjee: How did CoinSwitch restructure or downsize headcount in 2022?

singhal: CoinSwitch is over 600 strong today. Our workforce grew more than 40% between December 2021 and December 2022. We have always been frugal in terms of operations and hiring. Regardless of market conditions, we have always hired for what or when we need to, such as hiring the right talent that allows us to expand into other asset classes and products.

Mukherjee: What do you realistically see happening in 2023?

singhal: Innovation-wise, India has always been a powerhouse and known for its technological prowess. The real-life utility of blockchain technology, the technology behind cryptocurrencies, was expanded in 2022 via the activity of builders. So much so that various government departments have also used blockchain technology to streamline their processes and make them efficient, secure and reliable.

But hostile tax policy has dampened investor sentiment, which has led users to foray into tax-avoiding gray markets and exposed them to international whims like FTX and regulatory woes.

However, the innovative aspect, i.e. the constructive activity, seems to have absorbed these shocks. Our crypto ecosystem has huge potential in India, for the world, and to take global leadership, further fueling the digital India narrative.

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Image: Envato Elements

Therefore, in 2023, I want India’s crypto taxation policy to be refined, to make it more acceptable to investors, innovators and other players.

Mukherjee: Reserve Bank of India Governor Shaktikanta Das recently said that the next financial crisis will come from “private cryptocurrencies” if they are not banned. How does CoinSwitch intend to survive in India if this is the RBI view of cryptocurrencies?

singhal: Regulators are right that India does not need cryptocurrencies as a payment use case. Our existing payment systems and the recently tested e-Rupee (CBDC) meet the daily needs of making and receiving payments.

The utility of cryptography is that it is the engine that keeps a public blockchain running. And public blockchains are more scalable, flexible, and cost-effective than the private ledger solutions provided by Big Tech. In 2022, several Indian startups and even states [regional governments] they were exploring public blockchains for population-scale solutions like issuing diploma certificates or land records. These are the use cases from which a crypto asset derives its value.

However, we understand the concerns and, as I mentioned earlier, are working with stakeholders to help them understand the potential of cryptocurrencies.

Mukherjee: Have banking channels opened up for cryptocurrency exchanges in India?

singhal: CoinSwitch only allows withdrawals and deposits in Indian rupees. Investor protection is one of our main areas of focus and we continue to have discussions with various banking channels in that direction.

Mukherjee: Do you think the worst is over for cryptocurrencies or will it get even harder in 2023?

singhal: Cryptocurrencies are still an emerging asset class. Whether 2023 will be better or worse is hard to say. Despite entering 2023 with bearish sentiments, the industry continues to build and innovate. We plan to do the same.

Mukherjee: How financially healthy is CoinSwitch?

singhal: CoinSwitch has a healthy balance sheet and sufficient cash to continue to grow and build. In 2021, we had raised over $260 million from some of the largest venture capital firms in the world. As our recent reserves and liabilities test report showed, CoinSwitch’s Indian rupee cash holdings are 7.21 times our users’ Indian rupee balance. We have a sound investment track and frugal approach, which makes us confident in our financial health.

Mukherjee: How did the FTX crash affect your business?

singhal: We have had no exposure to the crash of FTX or its FTT token. The FTT token was never listed in the CoinSwitch app and therefore our users had no investment in the asset on our app.

Mukherjee: Was the FTX crash the biggest blow to the industry in 2022?

singhal: The cryptocurrency industry has undergone major corrections with the addition of downward pressure from black swan events such as Vauld, EARTH-MOON [stablecoin] implosion, capital of the three arrows [hedge fund] and the bankruptcy of FTX. However, the sudden collapse of a once $32 billion company is not an everyday occurrence. The FTX crisis was caused by high leverage, mismanagement of user funds, and poor risk management. Such finance practices can bring down any company in any industry, not just cryptocurrencies.

However, the collapse of FTX has exposed a major problem for the cryptocurrency industry: the loss of jurisdictional oversight and the importation of risk. The crash has exposed the need for regulations and international cooperation to protect investors.

Mukherjee: Is CoinSwitch’s income only from transaction fees right now?

singhal: Yes, CoinSwitch earns from the fees we charge for executing buy and sell transactions on behalf of users. This is our business model.

Mukherjee: India has assumed the presidency of the G20 since December. Do you expect this to change cryptocurrency regulations for the worse or for the better?

singhal: A global coordinated regulatory framework is the need of the hour to safeguard users and industry players. India’s presidency of the G20 is seen as a catalyst for the same and could be a great initiative to set the future course for the growth of Web 3.0.

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Red Fort (Lal Qila) in Delhi, India. Image: Envato Elements

Mukherjee: The Indian government seems extremely hostile to cryptocurrencies, but does the Indian cryptocurrency industry have any friends or allies within the government?

singhal: We cannot speak for the government and what we know about their stance on cryptocurrencies is what is publicly available. However, our reading from the Finance Ministry’s statements is that India wants to put in place a regulatory framework that allows responsible cryptocurrencies and protects investors.

Mukherjee: The Indian central bank has conducted trials of both wholesale and retail CBDCs. How do you think it will affect cryptocurrency trading in India?

singhal: It is possible that the Indian Central Bank Digital Currency (CBDC) exists alongside cryptocurrencies and both will be successful in the future. CBDCs and cryptocurrencies have different applications in the Indian context and one does not replace the other. CBDC represents the digitization of fiat currency and is an evolution of the existing digital payment system. This presents opportunities to reduce currency management costs.

Comparing CBDCs to cryptocurrencies is like comparing rupees to stocks. The use case of CBDCs is payments while crypto assets are investment instruments such as stocks. Cryptocurrencies are a gateway to a future decentralized world, the Web3.

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