Tech
How Tech-Savvy Traders Are Bypassing the Government’s Cryptocurrency Ban
“We are aware that access to offshore cryptocurrency platforms is available through VPNs and we are working to find a way around it,” Meity Secretary S. Krishnan said. “However, it is not about imposing regulatory hurdles; we will have to find a technological solution to block offshore exchanges despite VPNs.”
Tech-savvy users see IP blocking as a minor hurdle that they are willing to overcome, especially since all cryptocurrency trading on Indian exchanges incurs a 1% withholding tax (TDS) and there is greater liquidity on global cryptocurrency exchanges.
Of course, VPN use could slow down the small recovery seen in Indian cryptocurrency exchanges when global IPs were blocked.
Even a cryptocurrency rally, for the first time in two years, especially in the United States, does not guarantee higher volumes, because users can easily bypass Indian exchanges and make transactions directly with companies like Binance (the world’s leading cryptocurrency exchange with an average daily trading volume of $14.86 billion, according to tracker Coinmarketcap) and others.
The global crypto IP blocking was decided following a recommendation to this effect made by the Finance Ministry’s Financial Intelligence Unit (FIU) on December 28, due to exchanges’ non-compliance with India’s Prevention of Money Laundering Act (PMLA), 2002.
The FIU warning and subsequent blockade helped revive volumes on Indian stock exchanges to some extent.
Minal Thukral, executive vice president and head of growth and strategy at CoinDCX, said that CoinDCX saw a 200-fold increase in weekly crypto deposits in the week following the FIU notification, compared to the previous week, “and they are mostly coming from other exchanges.” He also added that CoinDCX’s daily trading volume has “nearly doubled” since the notification, without providing absolute numbers.
“Most new users would not want to live with regulatory uncertainty, where their investments could be frozen and they would not have the flexibility to withdraw due to regulations,” Thukral said.
“Additionally, retail users would like to profit from the bull run that the market is going through and will likely see through 2024.” Rajagopal Menon, vice president of fellow cryptocurrency exchange WazirX, painted a similar growth picture. “By the end of the September quarter, our annual crypto trading volume had fallen to around $4 billion per year from a high of $43 billion we saw at the start of 2022.
“We are now approaching an average annual trading volume of about $8 billion, double what we were down to,” he said.
“We are still a long, long way from the peak we reached; our trading volumes are down more than 90% from the peaks,” Menon added.
“This is not coming back any time soon, even though 2024 promises to be a bullish year for the global cryptocurrency industry.” In comparison, Coinmarketcap data showed CoinDCX and WazirX trading volumes at $6.58 million and $2.72 million, respectively, as of Friday.
Balaji Srihari, chief commercial officer at CoinSwitch, said the exchange’s weekly trading volume increased by as much as 35 percent in the week after December 28, when the FIU issued its notice to offshore exchanges.
It was not possible to ascertain the exact data on CoinSwitch trading volume.
A senior official familiar with the matter said WazirX has also been working with the FIU to ensure compliance with India’s financial statutes, which could prove beneficial in the long run.
Meanwhile, a global crypto bull run is being fueled by a resurgent Bitcoin token. After falling to a low of around $24,900 last September from a high of $68,000 in November 2021, the world’s largest cryptocurrency rebounded to over $48,600 on Jan. 11, the day the U.S. Securities and Exchange Commission (SEC) approved investment firms to create Bitcoin exchange-traded funds (ETFs). In three days of trading, Reuters reported that Bitcoin ETFs had surpassed $2 billion in trading volume.
However, not all parties were so enthusiastic. At the Mint BFSI Summit and Awards held on the same day (January 11) in Mumbai, Reserve Bank of India Governor Shaktikanta Das said that India’s “position on cryptocurrency remains unchanged: I don’t think emerging markets can indulge in crypto mania.” JP Morgan chief Jamie Dimon also spoke out against the value of Bitcoin, casting doubt on cryptocurrency optimists.
All of these elements come together as challenges that Indian exchanges need to overcome before potentially seeing a sustained surge in business. WazirX’s Menon added that there’s also a volatility issue, but that firms like BlackRock investing in Bitcoin could help stabilize the market.
“Yes, there may be volatility of almost 30%, but Bitcoin will bounce back and long-term investors will not exit. Wholesale investors, however, will continue to find a way to invest through global exchanges, until India finds a way to revise the impact of 1% TDS on all cryptocurrency trading.”