Indian crypto platforms thriving in regulatory grey zone, lower taxes: Zerodha's Nithin Kamath

Indian crypto platforms appear to be thriving in a regulatory grey zone coupled with lower taxes and extreme leverage in the futures & options segment, Zerodha founder and CEO Nithin Kamath said in a tweet on Tuesday, expressing his surprise over the kind of popularity crypto F&O has achieved.

"I hadn’t realised how popular crypto F&O has become. These Indian crypto platforms seem to be thriving in a regulatory grey zone, and because of lower taxes and extreme leverage in derivatives," Kamath tweeted, pointing to The Economic Times article.

The ET story describes how crypto futures trading has whizzed past spot deals across all local exchanges offering derivatives of virtual digital assets (VDAs). In India's discreet, and sometimes furtive world of cryptocurrencies, a new story is playing out.

A traction in crypto derivatives segment comes on the back of high profits being tasted by traders, escaping the high tax deducted at source (TDS) and paying a lower tax on profits. The charm of betting big with little money has pushed up futures volumes to three times or even more of spot volumes, this report said.

Futures are leveraged trades where traders can take exposure of as high as 10 to over 50 times the margin amount they chip in, as against a spot transaction where the full consideration is paid. Here, the leverage is far higher than stock futures. Globally, some exchanges allow 100 times leverage.

Besides a bullish market, what also fuelled futures in over the past few months is the readiness of domestic platforms to accept margins in Indian rupees.

Also Read: Zerodha's Nithin Kamath calls for lower STT, higher leverage to boost trading volumes in cash, futures

In crypto exchanges abroad, stable coins like USDT (and not fiat currency) are placed as futures margins. In India, exchanges spend the INR received as margin from traders to buy USDT, and cut a countertrade with a large global exchange like Binance to execute the futures trade. Thus, INR is converted into USDT to access a larger futures order book.

Crypto exchanges in India do not disclose daily trade volumes, but it's estimated at $3-5 million for each of the half a dozen top exchanges. Exchange officials prefer not talking about futures. Of late, few exchanges have been advertising futures on social media and OTT platforms.

Read more: Why are Indian traders flocking to crypto futures over spot deals?

Crypto deals attract a TDS of 1% which, deducted from sale proceeds, is paid irrespective of whether money is made. However, no TDS is paid when a trader unwinds positions in futures as trading in a crypto derivative, though deriving its value from a crypto as underlier does not result in VDAs changing hands.

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