India Cramps Crypto Scene: Major Exchanges Hit Hard

India’s The regulatory landscape for cryptocurrency continues to be uncertain and presents a significant challenge. For domestic exchanges and their clients, the Indian government has consistently adopted a stringent stance towards cryptocurrencies and the companies facilitating their trading. In the previous year, India stunned the international community by imposing a 30% tax on profits derived from digital currencies. To add complexity, they introduced a 1% levy deducted at source for each crypto deal, exacerbating the situation. This intense regulatory scrutiny has led many Indian traders to migrate to overseas cryptocurrency platforms in an effort to evade local taxes.

The Effect on Indian Cryptocurrency Platforms

New figures highlight this ongoing shift. Once the unchallenged champion of India’s cryptocurrency scene, WazirX has seen its trade volumes plunge dramatically. Over the past two years, these numbers have dropped by a staggering 97%. Experts caution that asset managers are shifting their trading activities to foreign platforms which provide more lenient regulations—a factor contributing significantly to this decline. To counteract this widespread pattern, CoinDCX launched a significant campaign designed to attract customers back to its service. They encourage users to move their digital currencies, particularly those held on international exchanges, over to their Indian-based offerings. Through various incentives, they aim to ensure that user funds find their way back "home."

The issues confronting Indian cryptocurrency exchanges go beyond mere market dynamics. Currently, there is intense pressure for adherence to local regulatory requirements. Despite a Supreme Court decision overturning the earlier prohibition on cryptocurrencies imposed by the Reserve Bank of India (RBI), keeps pushing for the ban on digital assets RBI officials have described cryptocurrencies as a Ponzi scheme. This harsh assessment has further complicated the operational environment for businesses in this sector.

Challenges Faced by Exchanges in India

Safety and regulatory adherence consistently take center stage in discussions about Indian trading platforms. Exchanges such as CoinSwitch Kuber, CoinDCX, and WazirX must enforce rigorous know-your-customer (KYC) procedures prior to accepting new clients onboard. Prioritizing compliance right from inception is crucial. Foreign exchanges operating outside of India are now obligated to register with India’s Financial Intelligence Unit (FIU-IND) and adhere to the nation’s anti-money laundering (AML) regulations and measures against terrorism funding (CFT).

Another prominent exchange, Coinbase—which holds a significant position in the worldwide market—has been struggling more than ever in India. As previously covered, the platform stopped accepting new clients in the country late last year. This move underscores the challenges brought about by the swiftly changing regulatory environment. Additionally, local exchanges have issued warning letters to the authorities highlighting how harsh taxation policies could drive users towards decentralized platforms or unregulated options, thereby exacerbating harm within the national marketplace.

Nevertheless, even amidst considerable obstacles, various Indian crypto platforms have garnered significant backing from prominent backers. CoinDCX has seen a substantial uplift thanks to an infusion from B Capital, whereas CoinSwitch Kuber has attracted investments from a16z. Their efforts to obtain this financial support underscore the unwavering belief in the potential of India’s cryptocurrency sector. This trust persists, regardless of the genuine regulatory hurdles present.

Previously associated with Binance, WazirX has assured its customers that their funds remain secure amid these turbulent conditions. The rapidly changing environment underscores the urgency of such assurances. Meanwhile, local Indian traders and exchanges grapple with issues related to regulatory adherence, taxation responsibilities, and rivalry from international competitors.

Featured image credit: Medium