In mid-January, India’s Google’s Play Store and Apple Store blocked Binance, Kraken and other foreign crypto apps. Blockage of access to the apps followed following India’s issuance in late December of compliance show cause notices under its Prevention of Money Laundering Act (PMLA) to nine overseas crypto exchanges and virtual digital asset services providers: Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global and Bitfinex. India’s Financial Intelligence Unit (FIU) alleges that the foreign crypto exchanges are non-compliant with the subcontinent’s anti-money laundering regulations.
The FIU wants to stop Indian traders from circumventing the stiff 30% tax on gains from crypto assets that was imposed last year as well as a 1% deduction on each crypto transaction. While local exchanges have had no choice but to follow those rules, those operating offshore have been able to ignore them. Tech Crunch notes that trading volume on WazirX has plunged 97% in two years in part because many traders have moved to global apps. CoinDCX Chief Executive Officer Sumit Gupta in October estimated that 95% of trading volume has moved offshore.
Meanwhile, local exchanges could be set to benefit – at least in the short term. CoinDCX said in January that it would provide rewards to customers who transfer their crypto assets from global exchanges to its India-based platform. BuyUcoin announced zero fee transfers for users from off-shore exchanges, while WazirX announced a bonus of 1% to users who transfer their crypto to it.
“Offshore exchanges should actively consider registering with the FIU-IND and comply with India’s AML and CFT measures. This is also better for consumer protection in India since there will be greater regulatory oversight of the ecosystem,” Ashish Singhal, co-founder and chief executive of CoinSwitch, said on X.
In the long term, the ban on offshore exchanges could augur ill for their local counterparts. Exchanges like Binance remain the key source of liquidity for most Indian exchanges. Indian exchanges do not usually hold crypo reserves and use an arbitrage margin of nearly 10% in any crypto token trade through them, Sidharth Sogani, founder and chief executive of Crebaco, a cryptocurrency research firm, told India’s Mint in January.