Indian Crypto Firms Gain as Binance Loses Grip on Indian Traders
In 2022, when Binance Holdings Ltd. underwent a contentious separation from its Indian counterpart WazirX, the global cryptocurrency giant appeared dominant in the local market, while WazirX struggled. However, a sudden shift in competitive dynamics occurred due to a government crackdown on offshore platforms.
Indian authorities, starting in late December, imposed restrictions on Binance and other foreign crypto exchanges lacking local registrations, prompting traders to shift their focus to domestic alternatives like WazirX. Numerous traders are reported to be transferring their deposits from Binance to these local platforms.
This turn of events serves as a much-needed relief for WazirX and its counterparts, including CoinDCX and CoinSwitch Kuber. These platforms had suffered from the impact of a 2022 taxation regime, which had driven traders towards offshore exchanges. The recent removal of Binance and other foreign exchanges’ apps from Apple Inc.’s App Store, following a request from the Indian government, further contributes to the potential gains of these domestic exchanges.
WazirX witnessed a significant increase of around 250% in deposit inflows in the four days after India issued a compliance show-cause notice on December 28, compared to the preceding four days.
CoinDCX, quick to resume accepting deposits post the notice, experienced a surge in inflows, with CEO Sumit Gupta noting a notable achievement in just two weeks compared to their typical three-month figures. Mudrex, backed by Y Combinator, also reported a substantial increase in deposit inflows and new users since the regulatory developments.
Approximately 70% of fresh inflows for WazirX and Mudrex are estimated to have originated from Binance, according to their assessments, while CoinDCX places the figure at around 40%. Binance, in response, expressed dedication to influencing positive policy-making but remained silent on questions regarding deposit outflows.
Although specific market share estimates for crypto exchanges in India are unavailable, Binance had previously dominated based on app downloads, especially after a transaction tax implemented in mid-2022 redirected much of the trading activity to offshore platforms. The Indian government’s action against offshore exchanges followed persistent lobbying by local competitors who argued that new taxes in 2022 created an uneven playing field. In late December, the Financial Intelligence Unit of India asserted that the nine exchanges were operating illegally in India, lacking compliance with anti-money laundering provisions introduced the previous year.
As part of the crackdown, the FIU also requested the information ministry to block the nine platforms’ websites locally, resulting in their unavailability in India as of Friday evening. However, their apps remain accessible on Google Play in India. Despite the challenging regulatory environment, trading volumes present a mixed picture among these platforms. WazirX claimed minimal fluctuations, CoinDCX noted a slight uptick possibly due to overall positive crypto sentiment, while CoinSwitch reported a substantial 30-35% increase in trading volumes in the week following the FIU notice to offshore rivals. CoinSwitch, similar to CoinDCX, reopened for deposits after the regulatory actions.
