Mumbai: Young investors who have been driving the cryptocurrency boom in the country seem to be liquidating their positions amid new taxation rules, only to be replaced by high net-worth individuals (HNIs) as the key investor segment on crypto exchanges.

Exchanges said several young investors who made money through high volumes of trading, including many from smaller cities and towns, have liquidated their positions, especially in the riskier assets.

At the same time, HNIs who tend to invest high amounts, sometimes touching anywhere around Rs 10 lakh in one go, are showing increasing appetite for crypto assets, they claimed.

Now, the changing profile of the investor is also impacting the nature of investment, industry experts said.

The way HNIs trade and invest is different, so are the assets they invest in.

HNIs do not trade as much as their younger counterparts. Also, they tend to opt for comparatively safer crypto assets such as Bitcoin and Ethereum, or even stablecoins that are pegged to US dollar or other currencies.

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“HNI investors have clarity now as compared to youngsters,” said Sathvik Viswanath, cofounder and CEO of Unocoin, a cryptocurrency exchange.

A 30% income tax on returns from all virtual digital assets (VDAs), introduced in the recent budget, came into effect on Friday. The government has also announced a 1% TDS on such assets starting July 1.

Crypto exchange officials also said the government decision to disallow set-off of losses from one crypto asset transaction against gains from another will wipe out profits for smaller investors.

Suppose a person invests in, say, both Bitcoin Ethereum and makes a loss of Rs 1 lakh on one and a profit of the same amount on the other, the investor will still have to pay Rs 30,000 in tax, as set-off is not allowed, they pointed out.

From youth to the rich

Youngsters from tier 2 and tier 3 cities had flocked to cryptocurrency platforms during the Covid-19 pandemic and crypto exchanges had also recorded a steeper growth in smaller cities than metros.

Crypto exchange WazirX had earlier told ET that most of its users are below 35 years of age and the exchange had recorded 2,648% growth in user signups in 2021 from Tier-II and Tier-III cities of the country.

Other exchanges had also recorded similar trends with most of the new cryptocurrency investors coming from cities such as Lucknow, Ahmedabad, Patna, Bhopal, Vadodara, and Kolkata. As per data available with BuyUcoin, a cryptocurrency exchange, Bhopal had seen the highest jump in new investors last year.

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But now that the taxation regime has started, many of these youngsters are taking a back seat.

“There will be some small retail investors who would opt out of the crypto industry itself just because they would have the burden of filing their returns by the end of the current financial year,” said Viswanath of Unocoin.

With large investors who do not trade so actively slowly replacing younger ones, crypto exchanges are likely to see lower volumes, experts said.

“We have seen trade volumes seeing slight dips during the last few weeks, but that can be mostly attributed to slowdown in retail markets,” said Shivam Thakral, CEO of BuyUcoin.

He also said a lot of investors are hedging their crypto portfolios into stablecoin assets that are pegged to reserve assets like a country’s currency or a commodity.

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