On April 7, Coinbase Global Inc. was launched in Bangalore, India. As Surojit Chatterjee walked the stage at the conference, he had little reason to anticipate the impending collapse. Chatterjee, the company’s chief product officer, told the assembled audience that crypto investors could now use the country’s online retail payment system to transfer funds to its local exchange.
Hours after Chatterjee’s announcement, the central bank’s support agency that runs the system – known as the United Payments Interface – said any crypto transactions using the network were “unknown”. Within three days of the event, Coinbase suspended rupee transactions for its commercial use via UPI.
This abrupt reversal left Coinbase customers with no way to finance their accounts in rupees, and a blow to its expansion plans in India. “We are committed to working with NPCI and other relevant authorities to ensure that we comply with local expectations and industry regulations,” a Coinbase spokesman said in a statement. Bloomberg April 11, refers to the National Payments Corporation of India, which operates UPI.
Also Read: WazirX, CoinSwitch Kuber Block Deposits via UPI, Stir Alarm
Coinbase is not the only one affected. Following its announcement, at least four companies providing crypto-related business services have stopped making rupee deposits or banks and payment gateways have pulled support for money transfers on their sites, according to company executives and local media reports. The other two exchanges had lost support for the rupee deposit from the payment service provider prior to the incident.
Exchange executives said those measures put additional pressure on already declining trading volumes. The industry is preparing to impose a new tax on all cryptocurrencies above a certain level with effect from July 1. The government this month introduced a 30 percent tax on the return on digital property investments.
CoinGecko’s data shows that the daily trading volume of Indian cryptocurrencies, which collectively serves about 15 million people, has fallen from 88 per cent to 96 per cent since it peaked last year. WazirX, India’s largest crypto stock market, is down 93 percent from its October high, according to data.
Investors who pay in crypto levels on an exchange can withdraw their Fiat currency. Coinbase already offers trading in crypto pairs in India, for which customers do not have to deposit rupees in their account.
“After the Coinbase announcement, those who supported the industry have withdrawn their support,” Vikram Supuraj, CEO of crypto exchange Geotas, said in an April 12 interview. Geotas’ toll gateway stopped working with it, and he declined to name the company. As a result, trade volume on the platform fell by about 70 per cent, Supuraj said.
Co-founder Athulya Butt said local competitor BuyUcoin has stopped paying via UPI after NPCI’s announcement.
NPCI is an initiative of the Central Bank and the Association of Banks of India, an umbrella body for retail fees and solutions in a country of 1.4 billion people. It did not respond to requests for comment.
On April 12, the Economic Times reported that the Bangalore-based cryptocurrency exchange CoinSwitch Kuber had suspended accepting rupee deposits through UPI and other banking channels. CoinSwitch did not respond to an email request for comment.
Read also: Rural India lags behind in digital payments despite doubling UPI usage in FY22
Crypto-trading companies in India have had an uncomfortable relationship with banks and payment service providers since 2018, with the central bank ordering lenders to stop working with digital asset companies. Although the Supreme Court reversed that order in 2020, some banks were reluctant to work with the crypto sector – due to public calls by top RBI officials to ban cryptocurrencies.
As a result of the warning of the traditional banking industry, payment gateways like MobiKwik have become an important link between crypto transactions and customers who want to deposit Fiat currency. Without their cooperation, investors are limited to using methods such as transferring money to current accounts of transactions, which is a time-consuming manual process where errors can occur. Coinbase India does not offer that option.
Investors may engage in peer-to-peer trading where Fiat’s transactions are handled directly between rivals, although this represents a small share of the market in India.
A payment service provider stopped working with crypto exchanges last year after banks said it had asked its CEO not to name him and his company because of the sensitivity of the issue.
MobiKwik, a local payment service provider, stopped working with Indian cryptocurrencies on April 1, according to Moneycontrol News. MobiKwik declined to comment. Another Indian crypto exchange, WazirX and CoinDCX, have announced the suspension of rupee deposits via MobiKwik.
Jaideep Reddy, a lawyer for Nishit Desai Associates, which specializes in technology, said restricting access to payments without legal evidence to do so would unjustifiably isolate the digital property sector.
“If a bank refuses to serve a crypto business, there must be a valid reason other than that it is a crypto business,” Reddy said. “Banks need to be transparent because account holders also have a charter of rights that includes transparency from the service provider.”
Edul Patel, co-founder and CEO of algorithmic cryptocurrency company Mudrex, said toll gateways in India began to withdraw support after the Coinbase episode. It also happened to Mudrex that in an interview on April 12, Patel declined to name its partner.
These moves not only affect trading, he said: Going into coin sets, cryptocurrency-like start-up offers like Y Combinator-backed start-ups have halved in the previous two to three days.
“Transactions around the world on Web 3.0 are innovative and Indian transactions are busy finding the next payment provider,” said Supuraj of Geotas.
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