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Cryptocurrency users around the world rely on exchanges to facilitate the transition between traditional currencies and crypto. They’re a vital link in just about every potential crypto application, but their centralized nature and reliance on traditional payment networks leave them vulnerable. Crypto users in India are experiencing this firsthand, as payment processors are now cutting off regional crypto exchanges.
Crypto Exchanges Across India Affected by Inability to Process Payments
Multiple crypto exchanges in India have had to suspend deposits through Indian institutions because the banks themselves have stopped providing services to crypto exchanges like WazirX and BuyUcoin. CoinSwitch Kuber is among the largest crypto exchanges in India and has had to shut down any deposits in Indian rupees completely.
Crypto exchanges are having trouble with institutions like Kotak Mahindra Bank and also online payment processors like MobiKwik. This means that it isn’t just direct bank deposits that are now out of the picture, but even online payments through companies based in India.
The lack of payment options has become widespread across India, leaving anyone buying and selling with few options. Many believe that India’s central bank could be playing a part in these events, with the institution having previously sent an official notice to individual banks dissuading them from any support for cryptocurrency use.
New Taxes Stifle Crypto in India
These events have come in the wake of increased taxes on cryptocurrencies in India. A law that went into effect on April 1st established a 30% capital gains tax on crypto trading without providing investors with the ability to claim deductions for losses.
The law also imposed a 1% source-deducted tax on any buying or selling of crypto, which has surely contributed to the reluctance of institutions to handle transactions. This part of the law will only take effect in July, and many institutions are taking this time to get out of crypto altogether. There is still the prospect of a court challenge eliminating this 1% tax, but experts believe that the 30% capital gains tax is here to stay.
Crypto exchanges are also facing increased tax scrutiny, with March having seen 11 separate exchanges investigated for tax evasion. The government seized over $12.6 million from these exchanges. These investigations and seizures took place under previous, less harsh tax regulations. With the new requirements, exchanges could face even greater challenges.
Unfortunately, the political landscape in India leaves little hope for improvement in the immediate future. At this point, the government stance wavers between heavy regulation and taxation or a complete crypto ban, not even considering lighter regulation. With the precedent for a total ban being set by China in 2021, India could follow suit.
We have also learned that there are various get-rich-quick schemes such as the recently launched “Bitcoin Motion” which tries to present itself as a legitimate exchange. However, a simple search for Bitcoin Motion review reveals something which is potentially much more sinister.
Coinbase Unable to Operate Just Days After Launch
Coinbase has also had a role to play in these affairs, with the US-based exchange making a number of moves to expand into India. In fact, the company drew significant attention with its launch. Unfortunately, the lack of government support for crypto, in general, makes this the last thing that an exchange should want.
Just days after its launch, Coinbase has had to suspend payments in India due to a lack of available payment methods. The exchange had initially intended to use the UPI payment system, a national inter-bank payment network based in India. However, the company that oversees the UPI payment system adamantly refused to acknowledge Coinbase, and the crypto exchanges have ceased using the payment system.
India Pushes for Stricter Crypto Regulation Globally
Within the international community, India is among the most restrictive countries when it comes to crypto. Their position on global crypto regulation is that there should be a framework put in place to monitor and investigate illegal activities conducted using cryptocurrencies.
This position was communicated at an International Monetary Fund panel by the Indian finance minister. She cited the potential for funding terrorism and money laundering as reasons for such a framework, along with the inability of nations to assess transactions outside their borders if conducted through crypto.
Overall, India continues to push for more stifling crypto regulations. This has already severely impacted the ability for exchanges to operate in India and could become worse quickly unless the political climate shifts soon.