In India, USDT is sold at a premium or marked-up rate, putting pressure on local crypto traders and investors. Tight regulations and added costs present unique challenges.
Crypto.news spoke with executives from CoinSwitch and WazirX, as well as members of India’s retail trading community, to understand the situation.
Why is USDT Sold at a Premium in India?
While globally 1 USDT is worth $1 USD, in India, it trades at 5-12% above world market rates. Other stablecoins face similar premiums or costly withdrawal fees.
Balaji Sirhari, Business Head at CoinSwitch, India’s largest exchange with over 20 million users, elaborated:
“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 WazirX, the second-largest crypto exchange in India, added:
“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 also incentivizes traders to hold USDT as a safe haven from currency fluctuations.”
Shetty also pointed out that high demand for USDT drives up prices.
Are Indian Traders Leaning Towards Long-term Investing?
Sirhari explained that India’s Tax Deducted at Source (TDS) as well as capital gains tax steer traders towards long-term investment:
“The 1% TDS on crypto transactions, along with the 30% tax on capital gains, makes short-term trading less appealing.”
Shetty concurred that the premium market impacts trading strategies, demonstrating how higher USDT prices correlate with reduced intraday trading volumes over recent years.
The Unique State of Crypto Investment in India
Crypto.news also spoke with several traders and investors, including Reddit user u/Bitmandoo, from the r/cryptoindia community. Bitmandoo highlighted:
“Trading crypto is not feasible in India due to the latest taxes. However, investing remains viable despite the taxes 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.”
Are Indian Crypto Regulations Stifling the Industry?
WazirX has assumed the cost of India’s 1% TDS tax to alleviate costs for traders. Shetty elaborated:
“According to an Indian think tank Esya Centre, 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 saw a significant decline in trading volume compared to 2021.”
However, regulatory clarity brought by the Financial Intelligence Unit in December 2023 saw volumes returning to Indian exchanges, with WazirX reporting a 250% increase in crypto deposits and a 100% rise in transaction amounts.
A Unique Situation for Indian Crypto Users
The USDT premium market appears to be a persistent feature, with Indian investors paying 5-12% more than the global rate for Tether. This makes day trading challenging, but the crypto market in India continues to thrive.
Both CoinSwitch and WazirX report massive active user bases, and the online community for Indian crypto traders is dynamic and adapting to new regulations. While some strategies like day trading may not be viable, the trading volume on India’s major exchanges has been increasing over the past year.
In India, USDT is sold at a premium or marked-up rate, putting pressure on local crypto traders and investors. With tight regulations and added costs when it comes to escaping volatility, what is life really like for Indian traders?
