When Surojit Chatterjee took the stage at a Coinbase Global Inc. in Bengaluru, India, on April 7, he didn’t expect the unexpected incident that followed.
Chatterjee, the director of Coinbase, told crypto investors that they can now use the country’s online payment system to transfer funds to a local crypto exchange.
Hours after Chatterjee’s announcement, India’s central bank, the operating backer of the Unified Payments Interface (UPI), said that it was “not aware” of any cryptocurrency exchanges. use the payment system. Three days after the event, Coinbase suspended the option to deposit rupees through UPI.
The sudden change left Coinbase customers with no way to fund their accounts in rupees. This deals a blow to Coinbase’s expansion plans in India.
A Coinbase spokesperson in an April 11 statement said:We are committed to working with the National Payments Corporation of India (NPCI) and other relevant authorities to ensure we are in line with local expectations and industry standards“.
Coinbase is not the only one affected. Since the announcement was made, at least four other companies providing crypto-related trading services have suspended deposits in rupees. Two other exchanges lost support for depositing in rupees from a payment service provider prior to the incident.
Coinbase Production Manager Surojit Chatterjee. Photo: Bloomberg
The Fall of the Cryptocurrency Sector
Exchange executives said the move puts additional pressure on already-declining trading volumes. The Indian Ministry of Finance has also announced a tax on all crypto transactions above a certain size effective July 1. The government this month also imposed a 30% tax on crypto investment income.
Data from CoinGecko shows that daily trading volume on Indian crypto exchanges has dropped between 88% – 96% since peaking in 2021. India’s largest crypto exchange. The WazirX degree has seen volume drop 93% from its October peak.
“Following Coinbase’s announcement, anyone who was providing support to the industry has withdrawn,” said Vikram Subburaj, chief executive officer of crypto exchange Giottus.
A ‘turbulent’ relationship
NPCI is an initiative of the Central Bank of India and the Indian Bankers Association (IBA). NPCI operates UPI, India’s most popular online payment infrastructure.
Cryptocurrency companies in India have had an uneasy relationship with banks and payment service providers since 2018. At that time, central banks issued directives to the banks. Lenders stop cooperating with digital asset companies.
In 2020, the Supreme Court changed that directive. However, some banks are still hesitant to work with the cryptocurrency sector. Partly because top officials at the Reserve Bank of India repeatedly called for a public ban on cryptocurrencies.
Due to caution from the traditional banking sector, payment gateways such as Juspay and MobiKwik have become an important link between crypto exchanges and customers looking to deposit fiat.
Without their cooperation, investors are restricted from using methods such as transferring funds to an exchange’s current account. A time-consuming manual process is prone to errors. Coinbase does not offer that option in India.
Peer-to-peer Transactions
Investors can also participate in peer-to-peer trading, where fiat transfers are processed directly between counterparties. However, this form only accounts for a small part of the market in India.
A payment service provider stopped working with crypto exchanges last year after banks asked to do so.
According to a report by Moneycontrol, local payment service provider MobiKwik stopped cooperating with Indian crypto exchanges on April 1.
WazirX and CoinDCX, another Indian crypto exchange, have both announced that remittances in rupees via MobiKwik have been temporarily suspended.
Source: Bloomberg
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