Tag: exchanges

Exchanges on tenterhooks as they await details of proposed cryptocurrencies Bill

Banking & Finance

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Cryptocurtency exchanges in India are on a wait and watch mode before they plan their next steps as a consequence of the Government’s move to introduce legislation to regulate the crypto industry. While the draft Bill proposes to ban all private cryptocurrencies, the exchanges wait for the details of the proposed law.

Cryptocurrencies prices drop in India after Centre moves bill

Nischal Shetty, Founder, WazirX, said, “While the description of the draft Bill appears to be the same as in January 2021, several noteworthy events have occurred since January. First, the Parliamentary Standing Committee invited a public consultation, and then our Prime Minister himself came forward to call for crypto regulations in India. That being said, let’s respectfully wait to find out more about the draft Bill to be tabled in Parliament.”

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Wednesday morning, Bitcoin’s price dropped 16.75 per cent on WazirX, Ethereum plunged 12.1 per cent, Shiba Inu dropped over 20 per cent, Dogecoin was down by over 16 per cent, Sandbox by 4 per cent and USDT or Tether by over 14 per cent.

This happened after the Lok Sabha’s summary of Bills to be tabled in the winter parliamentary session released the evening before mentioned that the government is seeking to prohibit private cryptocurrencies in the description of The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.

Will inputs be included?

Avinash Shekhar, Co-CEO, ZebPay, said, “We’re awaiting further details on the Bill that is going to be presented in the winter session of Parliament. There have been many positive steps taken by the government to learn and understand crypto and its impact on all stakeholders — investors, exchanges, policymakers. So, we’re looking forward to a crypto Bill that takes into consideration all the inputs from those discussions.”

“We welcome the move from the government. A well-assessed and thought-through regulation will pave the way for greater adoption of the technology and will help millions of Indians embrace this new-age asset class. We are looking forward to the next steps on this,” a CoinDCX spokesperson said.

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Banks’ crypto blockade: Exchanges try other modes to enable trade

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As traditional banks and prominent payment gateways continue to be wary of allowing cryptocurrency transactions, some digital payments players such as MobiKwik and Airpay have stepped into this space.

Currently, these are the only two payment processors or gateways serving the cryptocurrency exchanges, said Gaurav Dahake, founder and CEO, Bitbns. Relatively lesser known Airpay was co-founded by Amit Kapoor, Kunal Jhunjhunwala and Rohan Deshpande in 2012. Jhunjhunwala comes from the family of ace stock market investor Rakesh Jhunjhunwala. Rakesh Jhunjhunwala and his brother Rajesh Jhunjhunwala are also investors in the firm along with Kalaari Capital. Bitbns has created its own gateway solution which helps its customers deposit money through UPI and other modes for free. He added, “MobiKwik is launching its IPO this year. A large chunk of its revenue is going to come from cryptocurrency exchanges, as it is the only one that is serving the industry right now. MobiKwik has made a significant amount of money through cryptocurrency clients in the last few months.” An email sent to MobiKwik didn’t elicit any response.

Also read: Indian crypto exchanges flounder as banks cut ties after RBI frown

Last month the Reserve Bank of India had issued a statement clarifying that banks cannot cite 2018 order for not working with cryptocurrency startups. The banks were cautioned also to participate at their own risk ensuring diligence.

Banks are wary

Over a month on, there hasn’t been any change in the banks’ official stance on catering to the crypto exchanges, while they are yet to give access to payment processors or gateways to work with them.

“We were hoping that things would improve post clarification from RBI. Although things haven’t got bad, nothing has improved either with banks like ICICI Bank, Yes Bank and Paytm. They are still reluctant to work with cryptocurrency exchanges and other banks are not very positive either. We were hoping for clarification soon after RBI’s statement, but the talks are on as of now,” Avinash Shekhar, Co-CEO, ZebPay told BusinessLine.

Nischal Shetty, CEO, WazirX, though, believes that the RBI circular at least clarifies that the banks can work with the exchanges. WazirX being one of the largest players in the space has been following the conversations closely. “The business teams of banks are open to it because crypto industry is rapidly growing, but the compliance teams are still trying to put their thoughts together. At present, no bank has come forward to service the exchanges, but hopefully, they will soon,” he said.

“Banks don’t want to miss out the opportunity. They want to be seen as someone supporting this but because we don’t have a very clear legal framework for it in India, banks are being cautious and asking for a few more documents, discussing facilities and limits,” Ramalingam Subramanian, CMO, CoinDCX said.

The process and challenges

In absence of banking partners and payment gateways, WazirX has moved to peer-to-peer (P2P) trading transaction mode. Through P2P way, buyers and sellers of crypto on the exchange transfer money directly into each other’s bank account on trading a cryptocurrency, unlike earlier, when the money would first go into WazirX’s account and then get credited from there.

Others are still relying on the payment processor, doing a lot of the back-end clearance work of transactions manually themselves, as they don’t have access to automated API banking as of now. This leaves customers with limited options to do active trading and transacting when the cryptocurrency values are falling sharply. “Though smaller amount transactions can be done through UPI, but there is a daily limit to that. Customers are missing out on opportunities as larger transactions are restricted. New entrepreneurs don’t want to get into direct cryptocurrency startups right now and even if they do, they are setting up businesses abroad,” Shetty said.

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Leading crypto exchanges scout entry into India despite potential ban

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Global digital currency exchanges are exploring ways to set up in India, following in the footsteps of market leader Binance, industry sources told Reuters, while the government in New Delhi dithers over introducing a law that could ban cryptocurrencies.

Opponents of the potential ban say it would stifle the economic power of a tech-savvy, young nation of 1.35 billion people. There is no official data, but industry analysts reckon there are 15 million crypto investors in India holding over ₹100 billion ($1.37 billion).

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According to four sources, who declined to be identified as they were not authorised to comment on private discussions, US-based Kraken, Hong Kong-based Bitfinex and rival KuCoin are actively scouting the market, which analysts say would only get bigger if it was given a free rein. “These companies have already begun talks to understand the Indian market and the entry points better,” said one source directly involved with an exchange that had begun due diligence for an Indian firm it was considering acquiring.

The other two exchanges, he said, were in the initial stages of deciding whether to enter India and weighing their options, which effectively come down to a choice between setting up a subsidiary or buying an Indian firm, as Binance, the world’s biggest exchange, did two years ago.

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Bitfinex declined to comment while Kraken and KuCoin did not respond to an email seeking comment.

All three exchanges are ranked in the world’s top ten by data platform CoinMarketCap, based on their traffic, liquidity and trustworthiness of their reported trading volumes.

“The Indian market is huge and it is only starting to grow, if there was more policy certainty by now Indian consumers would have been spoilt for choice in terms of exchanges, because everyone wants to be here,” said Kumar Gaurav, founder of digital bank Cashaa.

India must take a holistic view on cryptos

Proponents of cryptocurrencies say they would be the most cost-efficient way for Indians abroad to remit funds home.

But authorities worry that rich people and criminals could hide their wealth in the digital world, and speculative flows of funds through digital channels, ungoverned by India’s strict exchange controls, could destabilise the financial system.

Caution across globe

Hitherto, India has had no rules specifically for cryptocurrency exchanges wishing to set up in the country. Instead they could register themselves as tech companies to obtain a relatively easy entry path.

In 2019, Binance acquired WazirX, an Indian cryptocurrency start-up which has allowed users to buy and sell crypto with rupees on the Binance Fiat Gateway.

US based exchange Coinbase has announced plans for a back office in India.

But with the regulatory environment for cryptocurrencies taking a turn for worse globally, Indian authorities are exercising greater scrutiny.

In China, authorities have forbidden banks and online payment companies from providing services related to cryptocurrency transactions.

And the Indian government was set to present a Bill to Parliament by March that proposed a ban on cryptocurrencies, making trading and holding them illegal. But the government has held it back, and conflicting statements since have fuelled uncertainty over the Bill’s fate.

Meantime, major Indian banks have begun to sever ties with cryptocurrency exchanges and traders, amid Reserve Bank of India’s concerns about the financial stability risks posed by the volatile asset.

The RBI is looking at launching its own digital currency, but Governor Shaktikanta Das in February described those plans as a “work in progress”.

For all the uncertainty over what India will end up doing, some digital currency exchanges clearly reckon it would be better to gain entry rather than miss out.

“It’s clear that the rewards outweigh the perceived risks, which is luring these global firms to the Indian market,” said Darshan Bathija, chief executive officer of Vauld, a foreign crypto exchange with a presence in India.

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IndiaTech.org whitepaper proposes defining cryptos as digital assets

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Industry association IndiaTech.org has proposed defining cryptos as digital assets and not currencies similar to other assets such as gold, stocks, or marketable securities.

The proposal is part of a whitepaper released by the association, which includes five key points aimed at providing regulatory clarity to crypto assets and exchanges in the country.

“Several countries such as the US, Australia have taken a very similar approach and have defined crypto assets as property,” the whitepaper has recommended.

It has also proposed introducing a system for registering Indian registered or founded cryptocurrency exchanges in the country.

The association has recommended permitting innovative uses of crypto by businesses and creating specific safeguards to protect retail investors from token issuance.

Taxation proposals

It has also called for a clear framework for taxing cryptos in the country.

“Enable taxation (direct and indirect) to treat crypto assets just as other current assets (but not cash), permit disclosures and regulate import which would result in additional revenue generation,” said the whitepaper.

It has also proposed putting in place checks and balances through well-defined reporting mechanisms, accounting standards and mechanisms to counter suspicious activities and transactions.

Regulatory system

Further, IndiaTech.org has suggested self-regulation for the industry based on a code of conduct that is framed in line with the government’s aim of safeguarding consumers as well as ensuring financial stability.

“The foremost need today is for this sector to be granted the much-needed regulatory clarity that it has been seeking. We are hopeful that the government will work with the industry to regulate the sector and that a progressive approach is adopted while doing so,” said Rameesh Kailasam, CEO, IndiaTech.org.

The whitepaper comes at a time when the government has been looking at banning cryptocurrencies in the country.

“More than being a replacement to fiat currencies, crypto by nature is a strong digital asset, a store of value,” said Sumit Gupta, Co-Founder and CEO, CoinDCX.

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