Crypto payments are frozen across India, hitting trading

 

BENGALURU: As Surojit Chatterjee walked on stage at the Coinbase Global Inc conference in Bengaluru, India, on April 7, he was given no reason to be concerned about the consequences that would follow. Chatterjee who is the Chief Product Officer, explained to the audience investors will soon be able to utilize the nation's online retail payment system for transferring funds to its local exchange.

After Chatterjee's announcement, the central bank-backed organization that manages the system -- dubbed United Payments Interface -- declared that the company was "not conscious" of any cryptocurrency exchange that was using the UPI network. After three days from the incident, Coinbase had halted rupee transactions to its trading app through UPI.

The sudden change in policy caused Coinbase customers with no means to pay their bills using rupees, causing a setback to its plans for expansion in India. "We will continue to work with NPCI as well as other relevant authorities to ensure that we are at a level with local expectations and the industry standards," a spokesperson for Coinbase stated in a announcement in an email to Bloomberg in April 11 referring to National Payments Corporation of India which runs UPI.

Coinbase was not the only one to suffer. Since the announcement there have been at least four other companies offering cryptocurrency-related trading services have stopped rupee deposits or had banks and payment gateways withdraw support for money transfers on their platforms, as per company executives as well as local news reports. Two other exchanges also been unable to support rupee deposits through an online payment provider prior to the incident.

Industries recession

These actions add pressure on already dwindling trading volume, exchange executives told. The exchange industry is also preparing for a tax change on all transactions that are above an amount that will be in effect from July 1. The government announced earlier this month an additional 30% tax on the income earned from digital investment in assets.

The daily trading volume on Indian cryptocurrency exchanges, that together serve around 15 million customers, has dropped by between 88 percent between 96% and 88% since the peak in December of last year, data from CoinGecko indicate. WazirX the largest Indian cryptocurrency exchange, saw its volume drop by 93% since the peak in October according to the figures.

Investors who invest in cryptocurrency positions through an exchange can take out from their bank accounts in fiat. Coinbase has already allowed trading of cryptocurrency pairs in India that doesn't require customers to transfer rupees into their accounts.

"After Coinbase's announcement, Coinbase announcement, the company that was offering assistance in the field has decided to end the support they provided," said Vikram Subburaj the chief executive officer of the crypto exchange Giottus in an interview on April 12. Giottus's payments gateway has was unable to work with it the company's chief executive officer said, refusing to mention the company. The volume of trading on the platform fell by about 70% because of the incident, Subburaj said.

Local competitor BuyUcoin has also stopped accepting payments through UPI following the warning from NPCI the co-founder Atulya Bhatt.

Uneasy relationship

NPCI is an initiative of both the Central Bank and Indian Banks' Association is an umbrella group for settlements and payments to retail customers across the country that is home to 1.4 billion citizens. The organization hasn't responded to inquiries for clarification.

CoinSwitch Kuber, a Bengaluru-based cryptocurrency exchange, temporarily stopped accepting rupee deposits through UPI as well as other channels of banking The Economic Times reported April 12. CoinSwitch didn't reply to an email request for comment.

Companies that trade in crypto-currencies operating in India have had a rocky relationship with payment service providers and banks providers since the year 2018, in the year that the central bank issued a direction to lenders to cease working with companies that deal in digital assets. Even though in 2020, the Supreme Court in 2020 reversed this directive, a few banks have remained reluctant to work with the crypto industry -in part due to the fact that top officials from the Reserve Bank of India have repeatedly called for cryptocurrency to be outlawed.

In light of the distrust of traditional banking industry Payment gateways such as Juspay and MobiKwik have become an essential connection between crypto exchanges and customers who want to make deposits in fiat currency. Without their support they are forced to methods of paying money into exchange's current accounts which is a lengthy manual process susceptible to mistakes. Coinbase isn't able to offer that service in India.

Peer-to-Peer

Investors may also participate in peer-to peer trading, in which the transfer of money is conducted directly between counterparties however, it is a tiny portion of market share in India.

The company that provides payment services was unable to work with cryptocurrency exchanges last year, after it was told by banks to not do it The CEO of the company stated that he was asking that the company's name not be mentioned due to the importance of the matter.

MobiKwik the regional payment services provider has was unable to work with Indian cryptocurrency exchanges on the 1st of April as per a story from News outlet Moneycontrol. MobiKwik has not commented on the matter. WazirX and CoinDCX Another Indian cryptocurrency exchange, both have confirmed that rupee deposits through MobiKwik are temporarily removed.

The Singled Out

The restriction of access to payments without legal reasons to do so amounts to unfairly excluding the digital asset sector according to Jaideep Reddy, a lawyer at Nishith Desai Associates for specializes in technology.

"If banks refuse to provide services to a crypto-related business there must be an actual reason that is more than the simple existence of a crypto company," Reddy said. "Banks must be transparent as account holders are also bound by an agreement on rights that also includes the transparency of service providers."

Edul Patel, co-founder and CEO of the algorithmic cryptocurrency trading company Mudrex Patel said that payments gateways across India have begun to withdraw support for their services following the Coinbase incident. The same thing occurred to Mudrex too, Patel said in an interview with the media on April 12. He declined to reveal the name of its partner.

The changes didn't only affect trading, but also the way that traders trade, he explained that inflows to Coin Sets, a mutual fund that is a crypto-based product similar to the one company backed by Y Combinator, dropped by about half over the past 2 to 3 days.

"While exchanges around the globe are innovating with Web 3.0, Indian exchanges are tasked with finding the next payment service," Subburaj of Giottus stated.