Over 80% of cryptocurrency trading in India has moved from spot to futures and derivatives, driven by efforts to avoid a 1% tax deducted at source (TDS). The shift has pushed retail investors toward high-leverage products, with an estimated 70% to 80% of them now losing money on derivative trades.
TDS drives exodus from spot markets
Introduced in the 2022 federal budget, the 1% TDS on each crypto transaction made frequent spot trading costly, as funds get locked in tax payments. In response, traders flocked to derivatives, which are not subject to the levy. Spot volumes have dropped by as much as 85%, according to industry estimates.
High leverage amplifies retail losses
Indian retail investors account for about 70% of all crypto futures trading on local exchanges. With leverage offered at 25x, 50x, and even 100x, small price swings can trigger liquidations. The pattern mirrors losses in equity derivatives, where retail investors have been estimated to lose over $12 billion annually.
Capital flees to offshore platforms
An estimated 75% of India's crypto trading now takes place on foreign exchanges such as Binance and Bybit, as traders seek to avoid domestic taxes and regulatory uncertainty. While digital assets can be legally bought and sold in India, they are classified as "virtual digital assets" (VDAs) rather than legal tender, leaving the regulatory framework incomplete. The combination of tax avoidance and high-risk leverage has reshaped India's crypto market into a derivatives-heavy, offshore-dependent structure, raising concerns about investor protection and capital flight.