In the past two years, dozens of crypto-focused VC companies have flocked to India in the hopes of transforming the country’s sizable development population into a formidable player in the web3 space. What, meanwhile, does Changpeng “CZ” Zhao, the most powerful and influential player in the crypto business, believe of India’s potential? Presently, not very much.
When asked about India’s crypto-friendliness, Zhao stated, “To be honest, I don’t think India is a particularly crypto-friendly climate”. There are plenty of those who share Zhao’s pessimistic outlook on the Indian market. There are dozens of investors and company founders I’ve spoken to who have privately expressed similar worries, but Zhao’s opinion stands out since no one else of Zhao’s position has publicly stated such a perspective.
In Zhao’s opinion, the high tax environment in the nation is the main reason why foreign companies are reluctant to enter the market. He argued that a 1% tax on every exchange would lead to a significant reduction in business activity. Binance, the largest cryptocurrency exchange in the world in terms of trading volume, is fully accessible to Indian customers.
It’s possible for a user to make 50 trades in a day and still lose money. There won’t be enough business to sustain an order book-style trading platform. Therefore, we don’t think it’s possible to establish a successful company in India right now. What we can do now is wait. He said, “We are in communication with a lot of business groups and powerful individuals and attempting to put some sense there,” as charging a high tax on each transaction leads to less tax accumulation in the long run.
“We are trying to get this message across, but tax policies typically take long time to change,” Zhao cautioned. “Binance goes to countries where regulations are pro-crypto and pro-business. We don’t go to countries where we won’t have a sustainable business — or any business, regardless of whether or not we go.”
Zhao dispelled rumours that the tumultuous merger talks with Indian exchange WazirX have dimmed the company’s outlook on opportunities in the country.
Earlier this year, India passed a bill to begin taxing virtual currencies. Profits from the sale of virtual assets are subject to a 30% tax. New Delhi has instituted a 1% tax deduction at source on payments connected to the acquisition of virtual assets in order to track all of these financial dealings.
Local exchanges CoinSwitch Kuber, supported by Sequoia India and Andreessen Horowitz, and CoinDCX, backed by Pantera, have seen a drastic reduction in the volume of transactions on their platforms since the country’s shift and the market collapse.
While the cryptocurrency market was red hot late last year, WazirX was handling daily transactions of over 500 million. A source familiar with the situation said last month that the sum had dipped below 5 million.
In the past, competing global exchanges have made moves in India.
Even though Coinbase has supported both CoinDCX and CoinSwitch Kuber, the exchange temporarily suspended its cryptocurrency platform in the nation earlier this year due to regulatory concerns.
In May, Coinbase CEO Brian Armstrong revealed that “due to some informal pressure from the [central bank] Reserve Bank of India,” the company has deactivated its support for the UPI local payments infrastructure.