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Indian crypto players believe investors in the country may move to homegrown platforms for investments after the finance ministry issued show cause notices to nine offshore virtual digital assets (VDA) service providers dealing with crypto assets.
The Financial Intelligence Unit (FIU) under the finance ministry on Thursday issued the show cause notices to VDA platforms like Binance, the largest cryptocurrency exchange, and Kucoin for non-compliance with anti-money laundering law and requested the Ministry of Electronics and Information Technology to block their websites.
“After the implementation of TDS (tax deducted at source), there was minimal activity on Indian exchanges as investors shifted to offshore entities. However, following yesterday's directive from FIU, I am confident that people will now prefer Indian platforms. International ones are at risk of getting banned, shut down, or even showing signs of moving out of the country. As a result, trading volumes will most likely bounce back,” said Sumit Gupta, co-founder and CEO, CoinDCX; a crypto exchange platform.
“This will start a much-needed conversation around compliance of exchanges that do not operate in India and investors might have to look into whether or not these platforms have been abiding by the 1 per cent TDS rule since it could cause a mismatch in tax reporting. The next step could be to get these offshore exchanges to comply with Indian TDS laws for services provided to Indians residing in India,” said Rajagopal Menon, VP, WazirX; a crypto exchange platform.
Companies said they are working to create a channel that ensures crypto investors who have their investments with offshore exchanges can be transferred to domestic platforms.
“We are working to create a channel for investors whose investments are stuck with offshore exchanges that were served with the show cause. That's something that we are trying to solve. It is a complex problem,” Gupta added.
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India had around 115 million crypto investors as of June 2022 and the Indian crypto market is expected to reach $241 million by 2030, a KuCoin report had stated.
Gupta said that Indian users or investors should only invest with entities that are registered with the FIU.
“Indian customers should interact with entities that are FIU registered whether it is Indian exchanges or offshore exchanges. It will protect them in the long run,” he added.
Meanwhile, players are optimistic about the next year’s crypto space.
“This is a good move before the next year starts and the optimism around a potential bull run and the Bitcoin halving sets off the adoption rate in the country like never before. It will ensure a safe ecosystem for virtual digital asset adoption in the country where all entities need to prioritise user protection through the measures implemented by the government,” Menon said.
Reserve Bank of India (RBI) Governor Shaktikanta Das had said at the Business Standard Insight Summit (BFSI) 2023 in Mumbai last month that cryptocurrencies are a serious threat to global financial stability, especially for emerging market economies. He expressed concern over regulating the use of cryptocurrencies.
“How will you regulate it (crypto)? Whom will you regulate and regulate what? Before you think of regulating it, let us first understand, what is this. What is this cryptocurrency? Is it a product, a financial product, an asset? If it is an asset, what is underlying that it is not a tangible thing? What is the underlying definition of cryptocurrency? Till now, I am yet to see a credible definition of what cryptocurrency is,” the governor had said.
