Crypto exchange CoinSwitch to diversify into wealth management

Bengaluru/New Delhi: Cryptocurrency exchange and aggregator platform CoinSwitch would need to fast-track its move to diversify into the wider wealth-tech services amid a more than 80% slump in annual operating revenue in FY23.

Ashish Singhal, co-founder and chief executive of CoinSwitch, said that while low crypto trading volumes in India have made the business difficult, the company has conducted multiple “stringent” cost-cutting moves in order to reduce its expenses amid what has been a turbulent two years for the overall crypto industry.

Now, CoinSwitch is shaping up to announce an “expansion” into the broader wealth management services as early as the upcoming quarter, Singhal said, adding that the company’s offerings will “look to fill up strategic gaps that still exist in stock market investment offerings in the industry.”

CoinSwitch’s revenue from operations declined by 81.7% to ₹45.6 crore in FY23 from ₹248.6 crore in FY22. Its losses reduced to ₹385 crore from ₹513 crore during the same period, according to company filings with the Registrar of Companies (RoC).

The company’s diminished scale is attributable to the challenges being faced by the industry. The platform, like the overall crypto industry, has seen trading volumes remain far below the 2022 peak. While CoinSwitch was an exchange aggregator, it has attempted several products such as its own exchange, and even a multi-exchange platform, to bring users to its platform. However, heavy taxation in India saw gross crypto trading volumes decline by over 95% since their peaks in early 2022 across all exchanges. CoinSwitch was no exception.

In the Union budget for fiscal year 2022-23, the government imposed a 30% tax on crypto gains, besides a 1% tax deducted at source, prompting investors to move to overseas platforms.

On 12 December, the company formed an umbrella entity, PeepalCo, in order to diversify its offerings. Singhal emphasized that while CoinSwitch itself will continue to focus on cryptocurrencies, standalone products will work independently within the new parent umbrella.

Crypto trading volumes are growing again, but they are not comparable to the surge seen in 2022, Singhal admitted. “Users were able to get into the crypto market and simply trade crypto, which contributed to the surge. But now, volumes are nowhere close to the peaks that we saw over two years ago,” he said.

Singhal claimed that with a different tax structure, growth in trading volume “would have perhaps been 10 times or probably even more.”

PeepalCo’s expansion strategy includes products such as equities, fixed deposits, exchange-traded funds (ETFs) and more. However, Singhal added that the company is not entirely diversifying away from cryptocurrencies.

“Cryptocurrency assets can only be about 4-6% of an investor’s portfolio. It is risky, so obviously, everyone cannot put all the money that they have into crypto—and nor should they. We’re looking at how users can build sustained wealth over time. Crypto is one part of the equation, but stock market, mutual fund and many other products could together help build this wealth,” Singhal said, explaining the rationale behind his move.

This is where CoinSwitch’s expansion plan will target, Singhal said. “Less than 3% Indians are getting into the stock market. That is what we’ll look to solve. Our product may not be drastically different from what you see in the market, but it would make a difference in terms of decision-making,” he added. However, Singhal clarified that the company will not be pursuing market advisory as a segment.

However, such a transition will mean that the company’s depleting finances could take further stress.

“It was much easier for us to be profitable at a lower scale. At a larger scale, one has to invest in the right things for the future. You can’t take short-term solutions and just be profitable. Our moves will require lots of investments, but I can’t say for now if we would be profitable in the next year or so. The eventual plan is to be self-sustainable.”

“We’ve reduced the overall cost from its peak in 2021. We’ve focused on handling trade volumes efficiently to pare costs, but we’d still need volumes to peak in crypto to reach profitability again in this industry. Reducing taxation is the only way forward for that,” Singhal added.

In October 2021, CoinSwitch became a unicorn cryptocurrency startup after a $260-million funding round led by global crypto major Andreessen Horowitz (a16z). A senior industry official close to the progress at CoinSwitch, who requested anonymity, said that the company has plenty of cash reserves to fuel its diversification plan—despite a mammoth drop in revenue in FY23.

“The startup has been frugal in its overall operations, more so in FY24. The overall progress has also been wise from Coinswitch, in order to take the bear market time-out to diversify wealth offerings. They’ve also managed to pare losses through various strategic measures—although much of it shows that running a pure-play crypto business, despite a lot of sudden hyper-optimistic buzz in the industry at the moment, might not be feasible in India unless there is a revision of taxation and regulatory stance,” the official added.