Indian cryptocurrency exchanges are set to face lower valuations, longer negotiation cycles, and hard bargaining by venture capital firms due to dipping trading volumes, talk of more restrictive tax regulations, and the impact of the Terra Luna collapse on retail investors, reported The Economic Times.
Market watchers say at least six transactions, both funding and M&A, are stuck due to valuation mismatches between crypto platforms and investors and strategic buyers.
A leading crypto platform, which recently announced a funding round, had reached out to VCs in September 2021 when valuations were at their peak. Discussions dragged on until the company closed a smaller round at a lower valuation recently.
Trading, which accounts for bulk of revenue, will shrink further when tax deducted at source kicks in on June 1, squeezing profit or even leading to losses for players with higher costs. Experts said the exchanges that have closed deals at high valuations will also find it tough to meet projected numbers, wrote Economic Times.
After a euphoric 2021, crypto investors have seen a combination of factors such as rising interest rates, inflation, the Ukraine-Russia conflict and a negative regulatory environment lead to a bear market.
The total value of the global crypto market dropped from $3 trillion in November 2021 to $1. 23 trillion as Bitcoin and other major alt coins were sold off.
Indian crypto entrepreneurs have been in firefighting mode, with the entire focus being on ensuring compliance, with new tax rules taking effect.
“As far as the valuation of crypto exchanges is concerned, it’s mostly driven by the trading volumes, users, growth rate, product, team, and stability of the exchange,” said BuyUcoin CEO Shivam Thakral.
“In a bear market and a hard regulatory environment, trading volume is the first victim as it directly impacts the investor’s behaviour and the business of crypto exchanges goes down,” he said
According to industry tracker Tracxn, India, one of the fastest-growing markets, attracted crypto funding and blockchain investments worth $638 million across 48 rounds in 2021.
CoinGecko data show that trading volumes across major Indian platforms like WazirX, CoinDCX, and ZebPay dropped sharply in the past three months.