On Wednesday, Bitcoin, the world’s most-valued cryptocurrency token by market cap, hit a record high of over $73,600, recording a threefold surge in prices in a span of six months.

Indian exchanges’ volumes have climbed on cue. Crypto exchange WazirX’s daily average trading volume recovered to $3.4 million in February from about $780,000 in September, show data from consultancy firm Crebaco Global. CoinDCX’s daily average trading volume improved to $2.7 million from $750,000 over the same period.

On Wednesday, WazirX’s daily crypto trades were at $13.2 million, the first time since May 2022 that it has crossed $10 million per day, per crypto market tracker Coingecko. On Thursday, daily trades were at a marginally lower $9.9 million. CoinDCX’s trading volume was at $7.2 million on Thursday and $7.5 million on Wednesday, up about 3x from February’s daily average trading volumes.

Still, the average trading volumes for both the exchanges are far below their peaks. WazirX’s trading volume is down 93% from its peak average trading volume of $47.2 million reached in March 2022, Crebaco’s data show. For CoinDCX, volumes were down by nearly 85% from their peak of $16.9 million in February 2022.

Industry experts attribute a wide number of factors to this, including apprehension among retail investors triggered by a lack of regulatory clarity, India’s crypto taxation policy, and statements against the cryptocurrency sector by senior government officials.

“We are in an early phase of this present crypto bull run. The trajectory, sentiment and overall demand is good—our customer acquisition and KYC teams are struggling to cope up with demand from retail investors. But aggressive taxation is why retail investor sentiment is subdued,” said Rajagopal Menon, vice-president at WazirX.

Ashish Singhal, cofounder and chief executive of homegrown crypto exchange aggregator Coinswitch, said bulk traders may not return as long as heavy taxation persists. “The taxation issue remains a question mark for India’s retail users. While the early revival of trade volumes was driven by a limited subset of retail investors, bulk users will not return until they’re more assured of the state of the industry,” said Singhal.

“This is because the TDS (tax deducted at source) rate applicable for crypto trades in India means that a regular investor will be needed to fetch new capital every day instead of earning through arbitrage and being able to use earned margins for further trading,” he added. “This is blocking the return of bulk daily and monthly trading volumes, which remain far lower than the highs of 2021 and early 2022,” he said.

On 11 January, the US Securities and Exchange Commission approved ETFs (exchange-traded funds) for Bitcoin tokens, a much-awaited development that had triggered a crypto rally in anticipation. Since then, global investment majors have acquired significant Bitcoin assets under management.

Over the past two months, BlackRock’s Bitcoin ETF has acquired $15.4 billion in bitcoin holdings, show data from market tracker Blockworks. Grayscale’s bitcoin holdings were at $27.7 billion and Fidelity’s at $9.2 billion as of 14 March.

For the crypto community, especially in India, such Bitcoin holdings add stability to an asset long considered too volatile for institutional investments.

“Peak retail investments will likely wait until a further astronomical price hike for Bitcoin. ETF demand globally is very strong, and this, coupled with the halving of Bitcoin supply in the market next month, could further lead to a major price hike,” said WazirX’s Menon.

Bitcoin’s ‘halving’ will reduce the supply of Bitcoin tokens in the market by half, at a time when demand for the token appears to be rising.

Bitcoin’s market cap has surged 74% since 1 January to $1.44 trillion on Thursday, per data from market tracker Coinmarketcap. Daily trading volume in Bitcoin has increased to $47.1 billion per day on Thursday from $18.4 billion on 1 January.

With supply set to halve, such metrics are projected to rise even further.

India, however, remains cautious about cryptocurrencies as an asset class. While there is no cryptocurrency law in India yet, India’s central bank, the Reserve Bank of India (RBI), had banned banks from holding or facilitating trading in cryptocurrency assets in 2018. A Supreme Court order the same year reversed this move, but RBI has maintained a negative stance on cryptocurrencies.

On 11 January, RBI governor Shaktikanta Das affirmed that the central bank’s “stance on crypto remains unchanged—travelling down that path will create huge risks”. Further, on 6 September, finance minister Nirmala Sitharaman called for establishing a framework to handle “issues related to crypto assets”,identifying cryptocurrencies as “a threat as well as an opportunity”.

All of this, coupled with Bitcoin’s steady decline until recently from its previous high of over $69,000 in November 2021 to under $16,000 in November 2022, had seriously affected India’s crypto businesses.

Coinswitch’s operating revenue declined a staggering 82% to ₹45.6 crore in FY23 from ₹248.6 crore in the year prior, as per its annual report filed with the Registrar of Companies on Wednesday. Its net loss, however, reduced to ₹385.4 crore in FY23 from the previous year’s ₹513 crore.

For CoinDCX, operating revenue tumbled 23% to ₹456 crore in FY23. However, multiple cost-cutting initiatives, including laying off 12% of its workforce in August, saw the company report a net profit of ₹28 crore for FY23, attributable to a gross reduction of ₹201 crore in net expenditure by the unicorn startup.

Several industry stakeholders admit to cost-paring initiatives. “We have made multiple strides towards profitability after slipping into losses in FY22,” said Coinswitch’s Singhal. “A lot of these moves have included slashing key expenses to run a leaner operation than before. However, much of this will depend on how the market and trading volumes revive.”

Singhal added that the company will expand beyond cryptocurrency businesses in the coming months. “We are expanding into other verticals and see major scope for innovation to increase the percentage of population that invest in stocks up to 10-15% from the present 4-6%. Even if our products are not drastically different from existing stock market products, we will look to fill market gaps that currently exist,” Singhal said.

Such diversifications could be more frequent across the cryptocurrency industry, industry stakeholders said, as regulatory conflicts keep investors away.

But Indian crypto exchanges may also have to bear some of the blame for not being able to attract more investors, say some industry experts.

“Exchanges in India have typically charged hefty margins of 8-9% above the price of a token in global exchanges. This does not bode well for investors that are aware of multiple options. In turn, this affects trade volumes further,” said Sidharth Sogani, founder and chief executive of Crebaco Global.

That apart, domestic crypto exchanges haven’t been able to collaborate as an industry to ask for constructive regulations that could have helped India develop cryptocurrency reserves as an asset class, he said.

“Because of the lack of regulations, crypto ventures and investors, as well as investment-related ventures and funds, have left the country and are plying their trades abroad by operating overseas ventures that do not even cater to Indian users,” Sogani added.

Sogani’s Crebaco, which offers consultancy and fund management services to crypto investors, is one of several web3 ventures that have moved to the UAE, British Virgin Islands and other locations to cater to global customers. In September, global cryptocurrency platform Coinbase stopped all India operations due to regulatory uncertainties in the country.

Expansion plans by global crypto firms to launch operations in India, such as that of US blockchain platform Algorand, have not taken off as weak demand and sentiments towards blockchain, cryptocurrencies and the entire web3 ecosystem have kept adoption of niche tech minimal.