When Surojit Chatterjee took the stage at a Coinbase Global Inc. conference in Bangalore, India on April 7, she had little reason to anticipate the fallout that would soon follow. Chatterjee, the company’s chief product officer, told the assembled audience that crypto investors could now use the country’s online retail payments system to transfer funds to their local exchange.
Hours after Chatterjee’s announcement, the central bank-backed entity that runs the system, called the United Payments Interface, said it was “not aware” of any cryptocurrency exchanges using the network. Three days into the event, Coinbase stopped transfers of rupees to its trading app via UPI.
The abrupt reversal left Coinbase customers without any way to fund their accounts with rupees, dealing a heavy 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 Coinbase spokesperson said in a statement to Bloomberg on April 11, referring to the National Payments Corporation. of India, which operates UPI.
Coinbase was not the only one affected. Since its announcement, at least four other companies providing cryptocurrency-related business services have either suspended rupees deposits or seen banks and payment gateways gain support for money transfers on their platforms, according to cryptocurrency executives. companies and local media reports. Two other exchanges had lost support for rupee deposits from a payment service provider before the incident.
Those actions put additional pressure on trading volumes that are already falling, exchange executives said. The industry is also preparing for a new tax on all crypto transactions above a certain size that will take effect on July 1. The government this month introduced a 30% levy on income from investments in digital assets.
Daily trading volumes on Indian cryptocurrency exchanges, which collectively serve some 15 million people, have plunged 88% to 96% since their peak last year, data from CoinGecko shows. WazirX, India’s largest cryptocurrency exchange, saw volumes drop 93% from an October high, according to the data.
Investors cashing out crypto positions on an exchange can still withdraw their fiat currency. Coinbase already offered crypto pairs trading in India, which does not require customers to deposit rupees into their accounts.
“After Coinbase’s announcement, whoever was providing support to the industry withdrew support,” Vikram Subburaj, CEO of cryptocurrency exchange Giottus, said in an interview on April 12. Giottus’ payment gateway stopped working with him, he said, declining to name the company. As a result, trading volume on the platform plummeted by around 70%, Subburaj said.
Local rival BuyUcoin also stopped payments via UPI after the NPCI notice, said co-founder Atulya Bhatt.
NPCI, an initiative of the central bank and the Banking Association of India, is an umbrella organization for retail payments and settlements in the country of 1.4 billion people. He did not respond to requests for comment.
Bangalore-based cryptocurrency exchange CoinSwitch Kuber has temporarily stopped accepting rupee deposits through UPI and other banking channels, the Economic Times reported on April 12. CoinSwitch did not respond to an email request for comment.
Crypto trading firms in India have had an uneasy relationship with banks and payment service providers since 2018, when the central bank issued a directive to lenders to stop working with digital asset firms. While the Supreme Court in 2020 reversed that directive, some banks were hesitant to work with the crypto sector, in part because top officials at the Reserve Bank of India have continued to publicly call for crypto to be banned.
As a result of the wariness of the traditional banking sector, payment gateways like Juspay and MobiKwik have become a crucial link between cryptocurrency exchanges and customers looking to deposit fiat currency. Without their cooperation, investors are limited to using methods like transferring money to exchanges’ checking accounts, a time-consuming and error-prone manual process. Coinbase does not offer that option in India.
From peer to peer
Investors can also engage in peer-to-peer trading, where fiat transfers are handled directly between counterparties, although that represents a small part of the market in India.
A payment service provider stopped working with cryptocurrency exchanges last year after being told to do so by banks, its chief executive 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 cryptocurrency exchanges on April 1, according to a report by news outlet Moneycontrol. MobiKwik declined to comment. WazirX and CoinDCX, another Indian crypto exchange, have announced that rupee deposits through MobiKwik have been temporarily suspended.
Restricting access to payments without legal grounds to do so adds to unfairly singling out the digital asset industry, said Jaideep Reddy, a technology attorney at Nishith Desai Associates.
“If a bank denies service to a cryptocurrency business, there has to be a valid reason other than the mere fact that it is a cryptocurrency business,” Reddy said. “Banks need to be transparent as account holders also have a bill of rights that includes service provider transparency.”
Edul Patel, co-founder and CEO of algorithmic crypto trading company Mudrex, said that payment gateways in India started withdrawing support after the Coinbase episode. That also happened to Mudrex, Patel said in an interview on April 12, declining to name his partner.
The moves didn’t just affect trading, he said: Inflows into Coin Sets, a mutual fund-like crypto product offered by the Y Combinator-backed startup, have roughly halved 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,” Giottus’ Subburaj said.