Binance, the world’s largest crypto exchange, finds itself losing ground in the Indian market it once dominated. The rift between Binance Holdings Ltd. and its Indian affiliate WazirX in 2022 seemed to favor Binance, but recent government actions have shifted the dynamics drastically.
When did Binance start losing ground in India?
Late in December, Indian authorities began restricting access to Binance and other foreign crypto exchanges lacking local registrations, prompting a surge of traders towards domestic alternatives like WazirX. The welcome relief for local players, including WazirX, CoinDCX, and CoinSwitch Kuber, is a result of this sudden shift. These firms struggled in the wake of a 2022 taxation regime that drove traders towards offshore exchanges. The removal of Binance’s app from Apple Inc.’s App Store, alongside seven other foreign exchanges, further contributed to the momentum shift.
WazirX reported a remarkable 250% increase in deposit inflows in the four days following India’s compliance show-cause notice to nine offshore platforms. CoinDCX, quick to reopen deposits after the notice, experienced a similar influx. Mudrex CEO Edul Patel shared that they achieved three months’ worth of figures in just two weeks, with over 30,000 new users registering since December 28.
Estimates suggest that approximately 70% of the fresh inflows into WazirX and Mudrex originated from Binance, with CoinDCX indicating a figure of around 40%. Binance, in response, stated that it is “working hard to inform constructive policy-making” but did not address questions about deposit outflows.
What’s next?
The Indian government’s crackdown on offshore exchanges follows months of lobbying by local competitors who argued that new taxes introduced in 2022 created an uneven playing field. The Financial Intelligence Unit’s notice in late December deemed the nine exchanges operating illegally in India without complying with anti-money laundering provisions, sparking further measures to block their websites locally.
Trading volumes tell a nuanced story, with the Tax Deducted at Source (TDS) introduced in 2022 affecting the landscape. WazirX claims volumes remain relatively stable, while CoinDCX notes a slight uptick, possibly influenced by overall bullish crypto sentiment. On the other hand, CoinSwitch reported a substantial 30-35% increase in trading volumes in the week following the FIU notice to offshore rivals.
A potential geopolitical dimension adds complexity to the situation. Esya Centre, a Delhi-based think tank, previously urged restrictions on offshore crypto exchanges not adhering to anti-money laundering regulations, highlighting that seven of these platforms have Chinese origins or founders. Binance, founded in China by Changpeng “CZ” Zhao, could be caught up in India’s broader scrutiny of Chinese investments and operations within the country, reminiscent of the app bans in 2020 and 2021 amid border tensions.
As India’s stance towards Chinese entities remains cautious, the ongoing scrutiny of offshore crypto exchanges reflects broader geopolitical considerations. Benefiting from the situation, domestic platforms are seizing the opportunity. They’re welcoming the influx of traders previously associated with Binance. Only time will reveal the lasting impact of these developments on the crypto market in India.
