Why is USDT more expensive in India? We talked to top local exchanges

In India, USDT is sold at a premium or high rate, which is putting pressure on local crypto traders and investors. With strict regulations and additional costs to ride out volatility, what is life really like for Indian traders?

Crypto.news addressed the issue by speaking with executives from India’s two largest cryptocurrency exchanges, CoinSwitch and WazirX, as well as members of the country’s retail trading community.

Why is USDT selling at a premium in India?

While 1 USDT is typically sold for $1 in the global market, in India USDT is typically sold at around 5%-12% above global market prices, with other stablecoins facing similar premiums or costly withdrawal fees.

Balaji Sirhari, Chief Operating Officer of CoinSwitch, India’s largest exchange with over 20 million users, notes that for many Indian investors, day trading is not profitable due to the USDT premium market and crypto taxes:

Most of the users on our platform are long-term investors and view crypto as an investment vehicle.
diversification asset rather than opting for day trading. This is due to higher costs
Included in microtransactions in crypto.

We also spoke to Nischal Shetty, the head of WazirX exchange, which recently made headlines after suffering a major security breach when more than $200 million was stolen from the exchange’s multi-signature wallet.

However, WazirX remains the second largest in India with over 16 million active users. According to Shetty, there are a number of key factors driving the USDT premium market:

First, Indian regulations make it difficult to invest rupees directly on crypto exchanges. Investors are turning to USDT, a stablecoin pegged to the US dollar, as a more accessible alternative. Second, the volatility of the Indian rupee against the US dollar is encouraging investors to hold USDT as a safe haven from currency fluctuations.

Shetty also noted that the high demand for USDT has also driven up prices. Similar to the Kimchi Premium in South Korea, there is a difference in trading prices for crypto assets like Bitcoin between Korean and foreign exchanges.

Are Indian investors turning to long-term investment?

Sirhari notes that the Tax Deducted at Source (TDS) and capital gains tax in India have driven investors towards long-term investment, a trend that is no doubt further encouraged by the Tether premium market:

The 1% TDS on cryptocurrency transactions and the 30% tax on capital gains make short-term trading less attractive.

Shetty also touched on how the premium market impacts trading strategies in India:

From 2018 to 2021, when the USDT price was between INR 60 and INR 80, the daily volume varied between 10% and 30%. In 2021, when the USDT price rose above 80, the daily volume dropped from 30% to 12%. In the last 6 months, when the USDT price rose from 87 to 93, the daily volume varied between 12% and 15%.

When the USDT price dropped, it was constant except for some extreme values. Daily volume also increased at that time. Our daily trading and high frequency trading were more affected due to the implementation of 1% TDS.

Exchange data compiled by Shetty for this crypto.news report shows that investors are indeed dependent on the USDT premium market, with Tether’s higher costs making daily trading costs prohibitive.

The unique situation of crypto investment in India

To get the end-user perspective, we also spoke to a number of investors and traders in India, including Reddit user u/Bitmandoo, a prominent member of Reddit’s r/cryptoindia community.

Bitmandoo has been trading and investing in cryptocurrencies since 2016 and says “my experience has been largely positive and progressive.” One reason for this outlook, they noted, is the increasing number of options available for trading.

However, the experienced investor notes that short-term strategies are becoming obsolete due to the Tether market:

No, crypto trading is not possible in India due to the recent taxes. However, if you adopt a long-term strategy and buy and hold for multiple years, it remains possible to invest despite the taxes. Short-term trading is impractical because the government taxes winning trades without allowing compensation for losing trades. I think India is the only country that does this.

Bitmandoo notes that traders in India typically purchase USDT through peer-to-peer transactions, such as the WazirX exchange, which supports P2P trading. This unique system allows people to enter with stablecoins, but it comes at a cost.

Speaking about the P2P market, Bitmandoo said, “With limited direct purchase options, users often resort to this method. Some rely on friends or family abroad to receive USDT at a lower cost.” “P2P scams pose a significant risk to sellers and often result in bank account freezes.”

The practice of purchasing USDT from outside the country, ‘hawala’, is generally illegal and investors are exposed to both scams and regulatory penalties by attempting this route.

Of course, that doesn’t stop it from happening; online forums are full of users claiming to have connections in countries like Dubai where they can get USDT at a discounted price, while all aspects of the market are trying to take advantage of the high prices.

Unless Indian banks enter the business directly and competition among entry/exit platforms increases, the premium is unlikely to fall.

Bitmandoo

The investor notes that if cryptocurrencies were taxed like stocks in India, the sector would have a higher chance of growth.

Are crypto regulations in India hindering the industry?

WazirX has shouldered the cost of India’s 1% TDS tax on crypto transactions to ease costs for traders and provide incentives for them to use the platform. Shetty said the regulations have had a serious impact on the entire industry:

According to Indian think tank Esya Center, Indian crypto investors moved digital assets worth $3.852 billion (INR 32,000 crore) from local to international crypto exchanges from February 2022 to the end of 2023. All Indian exchanges witnessed a dramatic decline in trading volume compared to 2021.

However, the Financial Intelligence Unit’s decision in December 2023, which made it mandatory for all operating exchanges in India to register with the existing tax norms and collect tax and TDS as per the government’s budget, has brought a return of volumes to Indian exchanges. For context, the number of cryptocurrency deposits on WazirX increased by 250% in the days following the FIU notification. The average transaction amount also increased by 100%.

It’s possible that the regulatory clarity added by the Indian government in 2021 could help rather than hinder exchanges, at least compared to the uncertainty seen when it first introduced the cryptocurrency law in 2021, Shetty said here.

A unique situation for Indian crypto users

While the prevalence of the USDT premium market is unusual, it seems to be here to stay for now, with Indian investors expected to pay 5%-12% more for Tether than the global market rate. While this premium market seems to make strategies like day trading impractical, the crypto market in India is still in full swing.

WaxirX and CoinSwitch are both reporting huge active user bases, and the online community for Indian crypto traders is thriving. As with all things, people have adapted to the new reality with ease. While India’s crypto community tends to shy away from services like DeFi staking and daily crypto trading, trading volumes across all of the country’s major exchanges have increased over the past year.