India has taken measures to suspend access to foreign cryptocurrency exchanges, including major players like Binance, KuCoin, and OKX. As reported by the Economic Times, this decision stems from a prolonged period of non-compliance with official requests for clarification from the Financial Intelligence Unit (FIU).
FIU’s Warning and Apple’s Precedent
The FIU, acting under the finance ministry, raised concerns about potential money laundering activities on these offshore platforms and issued a show-cause notice. Earlier in the week, Apple took a decisive step by removing these exchanges from its App Store, aligning with the FIU’s directive.
To address the situation, the FIU sent notices on December 28 to nine exchanges, including Binance, seeking justification for their unlicensed operations within India. Subsequently, the IT ministry was prompted to enforce URL access blocks on these platforms.
Read more: India Implements Stringent Measures on Foreign Crypto Exchanges
Impact on Domestic Exchanges and Trader Behavior
The move to block foreign crypto platforms inadvertently triggered a surge in registrations on domestic exchanges. Following the imposition of a 30% tax on crypto profits and a 1% TDS on transactions in India, traders had initially shifted funds to offshore exchanges, leading to a noticeable decline in trading volumes on local platforms in 2023.
However, the recent restrictions on access to Binance and other foreign exchanges since late December prompted a shift back to domestic counterparts such as WazirX, CoinDCX, and CoinSwitch Kuber. WazirX reported an impressive 250% surge in deposit inflows within four days of the December 28 compliance notice issued to foreign exchanges.
Mixed Outcomes: Growth for Domestic Platforms, Concerns for Investors
While this sudden shift has propelled growth for Indian domestic platforms, it has left many local crypto investors in a challenging position. A substantial amount of assets is now locked in the wallets of the blocked foreign platforms. Industry estimates suggest that around $4 billion in crypto assets remain offshore to avoid the 1% tax, with Binance holding a significant 80% share of this amount.
Navigating Regulatory Uncertainties
The regulatory landscape surrounding cryptocurrencies in India remains dynamic, prompting traders and platforms to adapt swiftly to changing circumstances. The recent ban on offshore exchanges underscores the government’s commitment to enforcing compliance and ensuring a transparent crypto ecosystem within the country. As the crypto community navigates these regulatory uncertainties, the impact on both offshore and domestic platforms continues to unfold, shaping the future trajectory of cryptocurrency trading in India.