tBTC (tbtc) 
In India, USDT is sold at a premium rate, adding pressure on local crypto traders and investors. With tight regulations and added costs to escape volatility, what is life really like for Indian traders?
Executives from India’s largest crypto exchanges, CoinSwitch and WazirX, as well as members of the nation’s retail trading community, provided insights into this unique market scenario.
Why is USDT Sold at a Premium in India?
Globally, 1 USDT is typically sold for $1 USD. However, in India, USDT is usually sold at around 5 – 12% above world market rates, with other stablecoins facing similar premiums or costly withdrawal fees.
Balaji Sirhari, Business Head at CoinSwitch, which is India’s largest exchange with over 20 million users, states that for many Indian investors, intraday trading is not profitable due to the USDT premium market and crypto taxes:
“Most of the users on our platform invest for the long-term and consider crypto as a diversification asset rather than preferring day-trading. This is due to the higher costs involved in microtransacting in crypto.”
Nischal Shetty, head of the WazirX exchange, highlighted several key factors in the USDT premium market:
“Indian regulations make it difficult to directly deposit rupees into crypto exchanges. Traders turn to USDT, a stablecoin pegged to the US dollar, as a more accessible alternative. The Indian rupee’s volatility against the US dollar incentivizes traders to hold USDT as a safe haven from currency fluctuations. The high demand for USDT also drives up prices.”
Are Indian Traders Leaning Towards Long-Term Investing?
Sirhari notes that India’s Tax Deducted at Source (TDS) and capital gains tax steer traders towards long-term investment, further encouraged by the Tether premium market:
“The 1% TDS on crypto transactions, along with the 30% tax on capital gains, makes short-term trading less appealing.”
Shetty also weighed in on how the premium market impacts trading strategies in India:
“From 2018 to 2021, when USDT price was between 60 INR and 80 INR, intraday volume ranged from 10% to 30%. In 2021, when USDT price went above 80, intraday volume decreased from 30% to 12%. In the last 6 months, as the USDT price increased from 87 to 93, intraday volume has been between 12% to 15%. This has been constant apart from some outliers when USDT price decreased. That’s when intraday volume also increased. Our day trading and high frequency trading got affected more due to the implementation of 1% TDS.”
Shetty’s exchange data indicates that traders are indeed impacted by the USDT premium market, with higher costs of Tether making intraday trading cost prohibitive.
The Unique State of Crypto Investment in India
To get an end-user perspective, several traders and investors in India shared their experiences. A prominent member of Reddit’s r/cryptoindia community, Bitmandoo, has been trading and investing in crypto since 2016. He shared his thoughts:
“My experience has been largely positive. There are more available options for trading now. However, short-term strategies are falling out of style due to the Tether market. Trading crypto is not feasible in India due to the latest taxes. Investing remains viable if you adopt a long-term strategy by buying and holding for multiple years. Short-term trading is not practical since the government taxes winning trades without allowing offsets for losing trades. India is the only country to do this.”
Bitmandoo also mentioned that traders in India typically buy USDT through peer-to-peer transactions. This unique system allows for people to onramp with stablecoins, but at a cost:
“With limited direct purchase options, users often resort to this method. Some rely on friends or family abroad to get USDT at a lower cost. P2P scams are a significant risk for sellers, often leading to frozen bank accounts.”
The practice of trying to purchase USDT from sources outside of the country, referred to as ‘hawala’, is typically illegal, exposing investors to scams and regulatory punishments. Despite this, the premium rates are capitalized on by various market players. Unless Indian banks directly enter this business and competition among onramp/offramp platforms increases, the premium is unlikely to decrease.
“If crypto in India was taxed more like stocks, the industry would have a better chance at growing.”
Are Indian Crypto Regulations Stifling the Industry?
WazirX has assumed the cost of India’s 1% TDS tax on crypto transactions to alleviate costs for traders and incentivize them to use the platform. Shetty noted the serious impact of regulations on the industry:
“According to an Indian think tank, Indian crypto investors have moved over $3.852 billion worth of digital assets from local to international crypto exchanges since February 2022. All Indian exchanges witnessed a staggering decline in trading volume compared to 2021. However, the decision by the Financial Intelligence Unit in December 2023 to make it mandatory for all operating exchanges in India to register with existing tax norms saw volumes coming back to Indian exchanges. The number of crypto deposits on WazirX went up by 250% following the FIU notice, with the average transaction amount up by 100%.”
While the prevalence of the USDT premium market is unusual, it seems it’s here to stay, with Indian investors expected to pay 5 – 12% more than the global market rate for Tether. Although this premium market makes strategies like day trading non-viable, the crypto market in India is still thriving.
WazirX and CoinSwitch report large active user bases, and the online community for Indian crypto traders is growing. Despite the challenges, the trading volume on all of the nation’s major exchanges has been increasing over the past year.
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