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Cryptocurrency and Indians
Context:
Indian crypto investors seek seamless transactions but face significant barriers due to vague domestic laws and withdrawal restrictions imposed by exchanges.
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- Mudrex, a US-headquartered, Bengaluru-based crypto platform, temporarily paused crypto withdrawals until January 28, 2025, to enhance security and protect against potential bad actors.
- CoinDCX, another crypto platform popular with Indian users, also faced confusion over its crypto withdrawal policy, with users complaining of sudden changes and unclear communication.
Cryptocurrencies are digital tokens or digital currencies that enable direct payments between individuals through an online system. Unlike national currencies, cryptocurrencies do not have legislated or intrinsic value; their worth is determined by what people are willing to pay for them in the market. Bitcoin and Ether are among the most well-known cryptocurrencies.
Problems Faced by Indian Crypto Investors
- Detailed Registration: To use crypto exchanges in India, traders must complete a registration process that includes Know-Your-Customer (KYC) verification, complying with Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulations.
- This ensures that users can engage in crypto trading and transactions without significant hurdles.
- Withdrawal Restrictions: Despite completing KYC, many investors have expressed frustration when, after making profits, they suddenly find themselves unable to withdraw their funds.
- Customer Complaints: Social media platforms like X ( Twitter) have been flooded with complaints from users who claim that crypto exchanges change withdrawal policies without warning or fail to provide clear information about these restrictions.
- Fear and Uncertainty: The lack of transparency has led many to question whether exchanges are facing liquidity issues or are attempting to hold on to user assets.
Reasons for Withdrawal Restrictions
- Regulatory Concerns: Fear of penalties from Indian authorities if withdrawn crypto is misused.
- Illicit Activities: Exchanges cite risks of crypto being used for money laundering or dark market purchases.
- Current Policies of Major Exchanges
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- CoinDCX: Justified restrictions due to India’s strict capital controls and risks of criminal activity, fearing that law enforcement might freeze exchange funds.
- CoinSwitch: This does not allow crypto withdrawals but permits conversion of crypto into INR.
- Zebpay: Offers two customer experience modes, one allowing crypto withdrawals manually and another with no instant crypto withdrawals.
- Binance: Allows crypto withdrawals for Indian users, though the company faces legal disputes with WazirX over ownership.
Investor Challenges and Workarounds
- Selling Crypto for INR: The Indian government’s strict stance on converting INR to other currencies, especially crypto, is a major reason for these withdrawal restrictions.
- Using International Exchanges: Some exchanges like Binance and WazirX are involved in legal disputes, adding further confusion for Indian investors.
- Unregulated Platforms: Investors may resort to selling crypto for INR or turn to international exchanges that do not comply with Indian tax laws. Some might use unregulated or decentralised exchanges with poor security.
What Needs to Happen?
- Clear Regulations: Crypto platforms like CoinSwitch and Mudrex emphasise the need for clear, comprehensive regulations to enable unrestricted crypto withdrawals and create a safer environment for investors.
- The introduction of a well-defined policy framework for Virtual Digital Assets (VDAs) is essential to clarify compliance and security issues.
- Enhanced Due Diligence: Exchanges like CoinDCX are developing frameworks to allow withdrawals for eligible users.
- Focus on Compliance: Regulatory guidelines could address concerns around security, compliance, and misuse prevention.
What Indian Crypto Investors Should Know?
- Exchange Headquarters: Many “Indian” exchanges are registered abroad, limiting domestic legal recourse.
- Limited Official Support: There’s little government protection for crypto-related losses or cybercrimes.
- Frequent Tax Notices: Exchanges often face tax evasion scrutiny, potentially disrupting services.
- Exchange Control: Centralised platforms hold significant power over user funds, influencing listing decisions, or freezing assets during investigations.
- Investor Preparedness: A thorough understanding of blockchain, price volatility, and India’s tax laws is critical.
- FIU Registration: While exchanges tout FIU registration, it doesn’t guarantee satisfactory customer experiences.
- Customer Service: Evaluate exchange support quality before investing large sums.
