Here's why KYC-compliant Indian crypto exchanges are worried

 Indian cryptocurrency exchanges are going through a rough patch. The recently introduced 30 per cent tax on crypto gains brought down trading volumes to a steep low but the newly introduced taxation is not the only cause of concern for KYC compliant crypto exchanges in India. Here are some issues plaguing KYC compliant exchanges in India.

1. MobiKwik suspends its services.

Fintech giant and payment service provider MobiKwik suspended its services across all cryptocurrency exchanges from April 1. Many crypto investors preferred MobiKwik to deposit funds in their wallets to buy cryptos because of its relative speed as compared to bank transfers and lower threshold limits. MobiKwik declined to comment to the queries posed by Business Today.

2. Liquidity providers back out.

As previously reported by Business Today, cryptocurrency exchanges are witnessing a liquidity crunch. Liquidity providers have backed out due to low margins. High frequency traders provide liquidity to exchanges and because of the newly imposed tax regime, they have backed out. 

"High-frequency traders provide liquidity in the crypto market, enabling efficient buying and selling of assets,” Ashish Singhal, CEO of CoinSwitch Kuber told Business Today.

3. UPI suspended across all exchanges.

Coinbase recently announced full scale operations in India and promised its users the option to buy cryptocurrencies via UPI. After this, the National Payments Corporation of India (NPCI) released a statement saying that they were unaware of any Indian crypto exchange offering investors the option to buy crypto via UPI. BT reported that at least 4 exchanges operating in India had this option. And since Monday, UPI has been suspended across all Indian crypto exchanges.  

Sathvik Vishwanath, the founder of Unocoin exchange, said, “We had UPI and bank transfer available till last week but we are only supporting bank transfers now.” UPI is also suspended across exchanges like CoinSwitch Kuber, CoinDCX, WazirX, etc.

4. Banks distance themselves from crypto exchanges

Banks have started distancing themselves from crypto exchanges due to the restrictive policies of the government when it comes to crypto and other virtual digital assets. Many banks have withdrawn the option buy cryptocurrencies via their channels on crypto exchanges. 

Nischal Shetty, co-founder of WazirX exchange, said, “There has been reluctance from the banking industry to provide crypto exchanges with channels to deposit funds. However, we are in conversations with banking partners to iron out the issue at the earliest and help provide our users with other faster and hassle-free depositing methods.”

It is noteworthy to mention that all these factors might tempt crypto investors to move towards decentralised exchanges (DEX). Akshat Shrivastava, finance influencer, is of the opinion that the government will actually lose out tax revenue if investors start migrating to such exchanges. 

He said, “It is theoretically impossible for the government to track transactions on DEX and peer to peer markets (P2P), and this would actually promote crypto tax evasion.”

Similar concerns were shared by Nischal Shetty. “The challenges that crypto investors are facing today can lead to an array of disadvantages for the entire system. It can also lead to traders transacting on P2P exchanges instead of the Indian exchanges that are KYC compliant. It will also result in the government losing out on tax revenues. Under such unfavorable circumstances, we will see more and more startups in crypto and Web3 move abroad. We must stop this brain drain by bringing in more conducive and concrete policies that will help us Make in India,” he added.