Since last year, trade volumes on Indian crypto exchanges have decreased by 88 percent to 96 percent.

When Surojit Chatterjee took the stage at a Coinbase Global Inc. conference in Bengaluru, India, on April 7, he had no idea what he was getting himself into. Crypto investors will now be able to use the country’s online retail payments system to transfer cash to the country’s local market.

United Payments Interface, the central bank-backed company that runs the system, said it was “not aware” of any crypto trades utilizing the network hours after Chatterjee’s statement. Coinbase suspended rupee transactions to its trading app over UPI within three days of the incident.

As a result of the abrupt reversal, Coinbase customers were unable to deposit rupees into their accounts, jeopardizing the company’s plans to develop in India. Coinbase wasn’t the only company to face difficulties. Since the announcement, at least four other organizations that provide crypto-related trading services have suspended rupee deposits. According to officials at the firms and local media sources, payment gateways discontinue support for money transfers into their platforms.

• Coinbase halted UPI 3 days after its India launch.

• 70% of WazirX’s business has eroded since Mobikwik cut services to crypto exchanges

• Banks are at will to cut off services to crypto companies.

India’s rank may’ve improved in ease of doing biz, but struggles continue!

— Vargab Bakshi (@vargabbakshi) April 13, 2022

Stagnation in the Industry

According to exchange executives, these actions added to the strain on already dwindling trade volumes. The company is also preparing for a new tax on all cryptocurrency transactions above a certain level, which will take effect on July 1. Earlier this month, the government slapped a 30% tax on proceeds from digital asset investments.

Trade volumes on Indian crypto exchanges have declined by 88 percent to 96 percent since peaking last year. WazirX, India’s largest crypto exchange, saw volumes drop 93 percent from a high in October, according to the data. Investors can keep their fiat money if they sell their crypto assets on an exchange. Customers in India may already trade crypto pairs without having to deposit rupees into their Coinbase accounts.

In an April 12 interview, Vikram Subburaj, chief executive officer of crypto exchange Giottus, said, “Whoever was providing support to the industry has withdrawn support after the Coinbase remark.” Because Giottus’ payment gateway had stopped interacting with it, he declined to name the company. According to Subburaj, the site’s trade volume plummeted by roughly 70% as a result. As a result of the NPCI notification, local rival BuyUcoin has also stopped accepting UPI payments, according to co-founder Atulya Bhatt.

Relationship with an Uncomfortable Feeling

The National Payments and Settlements Institute (NPCI) is an umbrella group for retail payments and settlements in the 1.4 billion-person country, formed by the central bank and the Indian Banks’ Association. CoinSwitch Kuber, a Bengaluru-based cryptocurrency exchange, had temporarily ceased accepting rupee deposits via UPI and other banking channels, according to the Economic Times on April 12. CoinSwitch did not respond to an emailed request for comment.

Crypto-trading firms in India have had a contentious relationship with banks and payment service providers since the central bank issued a regulation barring lenders from collaborating with digital asset companies in 2018. While the Supreme Court overturned that decision in 2020, several banks have remained leery of cooperating with the crypto sector, in part because top Reserve Bank of India officials have frequently called for the ban of cryptocurrency.

As a result of the traditional banking sector’s distrust, payment gateways like MobiKwik have become a critical link between crypto exchanges and clients looking to deposit fiat currency. If the deals refuse to participate, investors are limited to options such as manually transferring funds to the exchanges’ current accounts, which is a time-consuming and error-prone operation. Coinbase does not offer this service in India.

Peer-to-Peer

Peer-to-peer trading, in which currency transfers are made directly between counterparties, is also available to investors. According to its CEO, who requested anonymity owing to the sensitivity of the subject, one payment service provider stopped interacting with crypto exchanges last year after being encouraged to do so by banks.

MobiKwik stopped working with Indian crypto exchanges on April 1, according to a report by Moneycontrol. Rupee deposits via MobiKwik have been temporarily blocked, according to WazirX and CoinDCX, an Indian crypto exchange. A request for comment from MobiKwik was not returned.

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Identified

According to Jaideep Reddy, a technology lawyer at Nishith Desai Associates, restricting payment access without legal grounds amounts to unfairly singling out the digital asset market.

“If a bank refuses service to a crypto business, there needs to be a valid reason other than the fact that it’s a crypto business,” Reddy noted. “Because account holders have a charter of rights that includes the service provider’s transparency, banks must be transparent.”

According to Edul Patel, co-founder, and CEO of algorithmic crypto trading firm Mudrex, payment gateways in India began removing support after the Coinbase event. According to Patel, who declined to name Mudrex’s partner in an April 12 interview, this happened to them as well.

He said that the changes affect more than only trading: Inflows into Coin Sets, a mutual fund-like crypto product offered by the Y Combinator-backed company, have dropped by nearly half in the last two to three days. “While the rest of the world is working on Web 3.0, Indian exchanges are on the hunt for the next payment provider,” Giottus’ Subburaj said.