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Home / Markets / Cryptocurrency /  Crypto payments frozen across India after
Coinbase announcement


CRYPTO PAYMENTS FROZEN ACROSS INDIA AFTER COINBASE ANNOUNCEMENT

Premium Coinbase already offered trading in crypto pairs in India, which doesn’t
require customers to deposit rupees into their accounts. (Bloomberg) 5 min read
. Updated: 16 Apr 2022, 07:13 AM IST Bloomberg

 * Daily trading volumes on Indian crypto exchanges, which collectively cater to
   about 15 million people, has tumbled by between 88% and 96% since peaking
   last year, data from CoinGecko show



Read Full Story
Listen to this article




When Surojit Chatterjee walked on stage at a Coinbase Global Inc. conference in
Bengaluru, India, on April 7, he had little reason to anticipate the fallout
that would shortly ensue. Chatterjee, the company’s chief product officer, told
the assembled audience that crypto investors would now be able to use the
country’s online retail payments system to transfer funds to its local exchange.



Hours after Chatterjee’s announcement, the central bank-backed entity that runs
the system — called United Payments Interface — said it was “not aware" of any
crypto exchange using the network. Within three days of the event, Coinbase had
halted rupee transfers to its trading app via UPI. 

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The abrupt reversal left Coinbase customers without any way of funding their
accounts with rupees, dealing a blow to its expansion plans in India. “We are
committed to working with NPCI and other relevant authorities to ensure we are
aligned with local expectations and industry norms," a spokesperson for Coinbase
said in a statement to Bloomberg on March 11, referring to the National Payments
Corporation of India, which operates UPI. 



Coinbase wasn’t the only one affected. Since its announcement, at least four
other companies that provide crypto-related trading services have either
suspended rupee deposits or seen banks and payment gateways pull support for
money transfers onto their platforms, according to executives at the firms and
local media reports. Two other exchanges had lost support for rupee deposits
from a payment service provider before the incident. 

Industry Slump

Those actions put additional pressure on already falling trading volumes,
exchange executives said. The industry is also bracing for a new tax on all
crypto transactions above a certain size that will take effect on July 1. 

Daily trading volumes on Indian crypto exchanges, which collectively cater to
about 15 million people, has tumbled by between 88% and 96% since peaking last
year, data from CoinGecko show. WazirX, India’s biggest crypto bourse, saw
volumes drop 93% from an October high, according to the data. 

Investors who cash in crypto positions on an exchange can still withdraw their
fiat currency. Coinbase already offered trading in crypto pairs in India, which
doesn’t require customers to deposit rupees into their accounts. 

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“After the Coinbase announcement, whoever was providing support to the industry
has withdrawn support," said Vikram Subburaj, chief executive officer of crypto
exchange Giottus, in an April 12 interview. Giottus’s payment gateway stopped
working with it, he said, declining to name the company. Trading volume on the
platform plunged about 70% as a result, Subburaj said. 

Local rival BuyUcoin has also halted payments via UPI after the notice from
NPCI, said co-founder Atulya Bhatt. 

Uneasy Relationship

NPCI, an initiative by the central bank and the Indian Banks’ Association, is an
umbrella organization for retail payments and settlements in the country of 1.4
billion people. It didn’t respond to requests for comment. 

CoinSwitch Kuber, a Bengaluru-based cryptocurrency exchange, temporarily halted
accepting rupee deposits via UPI and other banking channels, the Economic Times
reported April 12. CoinSwitch didn’t respond to an emailed request for comment.
 

Crypto-trading firms in India have had an uneasy relationship with banks and
payment services providers since 2018, when the central bank issued a directive
to lenders to stop working with digital asset companies. While the Supreme Court
in 2020 reversed that directive, some banks remained hesitant to work with the
crypto sector — in part because top officials at the Reserve Bank of India have
kept calling publicly for cryptocurrencies to be banned.

As a result of the wariness from the traditional banking sector, payment
gateways like Juspay and MobiKwik have become a crucial link between crypto
exchanges and clients seeking to deposit fiat currency. Without their
cooperation, investors are limited to using methods like transferring money to
the exchanges’ current accounts, a time-consuming manual process prone to
errors. Coinbase doesn’t offer that option in India. 

Peer-to-Peer

Investors can also engage in peer-to-peer trading, where transfers of fiat is
handled directly between the counterparties, although that represents a small
share of the market in India.   

One payment service provider stopped working with crypto exchanges last year
after being told by banks to do so, its CEO said, asking that he and his company
not be named due to the sensitivity of the issue. 

MobiKwik, a local payment service provider, stopped working with Indian crypto
exchanges on April 1, according to a report by news outlet Moneycontrol.
MobiKwik declined to comment. WazirX and CoinDCX, another Indian crypto
exchange, have both announced that rupee deposits via MobiKwik have been
temporarily suspended. 

Singled Out

Restricting payment access without legal grounds for doing so adds up to
unfairly singling out the digital asset industry, said Jaideep Reddy, a lawyer
at Nishith Desai Associates for specializes in technology.

“If a bank denies service to a crypto business, there has to be a valid reason
other than the mere fact that it’s a crypto business," Reddy said. “Banks have
to be transparent, as account holders also have a charter of rights which
includes transparency from the service provider." 

Edul Patel, co-founder and CEO of algorithmic crypto trading firm Mudrex, said
payment gateways in India started withdrawing support after the Coinbase
episode. That happened to Mudrex as well, Patel said in an April 12 interview,
declining to name its partner.  

The moves didn’t just impact trading, he said: Inflows into Coin Sets, a mutual
fund-like crypto product the Y Combinator-backed startup offers, fell by roughly
half in the previous two to three days.  

“While exchanges around the world are innovating on Web 3.0, Indian exchanges
are busy finding the next payment provider," Subburaj of Giottus said.


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