First Zebpay in September ’18, then Coindelta in April ’19, followed by Coinome in May ’19 and Koinex, today [27th July ’19]. Why are Indian exchanges shutting down so rapidly? If Bitcoin is still not illegal and we can buy, sell and hodl cryptocurrencies, what makes exchanges shut down all their services?
The answer to that is none other than the banking blockade!
Let’s understand this better; when these exchanges started their businesses there were no banking restrictions. Banks were allowed to work with exchanges to convert cryptocurrencies to INR and vice versa.
When Reserve Bank of India came up with its circular dated 6th April 2018 it stated that banks, financial institutions, and NBFCs under RBI would no longer be able to support the conversion of cryptocurrencies to INR and vice versa. This indicated that banking channels couldn’t convert cryptos to the Indian rupee, meaning, Indian exchanges would no longer get any support from banks.
If no banks are integrated with cryptocurrency exchanges, how can people deposit and withdraw INR to trade?
When this question first came into the picture, Zebpay exited the Indian market and re-opened later to serve the international market. While one of the biggest exchanges shut, exchanges such as Koinex.in, Bitbns.com, Wazirx.com and more used the limitation to build a better solution. They came up with P2P [Peer-to-peer] withdrawal/deposit mechanism.
How does the P2P mechanism work?
Let’s just say we have 2 traders; A and B. Trader A wants to deposit 10000 INR while trader B wants to withdraw 10000 INR. The mechanism will match traders A and B. Then trader A will have to deposit 10000 INR in trader B’s bank account and show the proof of transaction to the exchange by submitting the transaction ID. This automatically deducts 10000 INR from B’s account on the exchange and deposits 10000 INR to trader A’s account.
This mechanism built more trust in the community and was sufficient for a temporary solution as the Supreme Court of India was going to come up with a rigid decision in 2018. But 14 months later, no actions have been taken and it’s difficult to sustain a business with no regulations and banking support.
The Indian exchanges for over a year and even now are burning their own capital by accelerated seamless trading for its audience, by providing customer service, paying their employees at par with the industry standards and more. All of this, while not generating any revenue because of the long crypto winter and of course zero support from the government and banking channels.
For any business to sustain, the most important part is generating revenue, Indian exchanges with the lack of regulations have lost a huge amount of their userbase, and with the current audience, the exchanges do not receive enough trading activities in a day which can generate revenue for them to sustain. As a typical buy order of 10000 INR will bring in around 4-5 INR of revenue to the company and on an average the trade rate does not go above 5000-25000 trades a day [an estimation].
These limitations have made the businesses of Indian exchanges almost impossible and extremely difficult to sustain.
We asked Rahul Raj the CEO of India’s largest exchange – Koinex, about how it was to run an exchange with so many limitations and almost zero help from regulators?
It was actually a rollercoaster ride, it was definitely difficult to run one of the biggest cryptocurrency exchange in India without any guidance, although this did leave room for treading untested waters that resulted in a culture of innovation. We as a company tried our best, leveraged our resources and created multiple products for the betterment of our community. However, the lack of regulatory support meant that we couldn’t do business properly if the required infrastructure is not provided to us. A significant lesson we learned as a team was that it’s strenuous to explain frontier technology to regulators who either don’t understand advancement or are not comfortable with it yet. Nevertheless, we started the journey for financial sovereignty, to provide India with a better platform to practice it, if not digital assets, I’m sure we will find a different and a better way.
As Rahul said, the Indian regulators either do not understand the disruptive technology – blockchain, cryptocurrencies have to offer or aren’t comfortable working with it yet.
A country with a population of over a billion people has yet not embraced a revolutionary payment mechanism. One of the legendary movements the Indian exchanges started was the support they provided to the crypto-trading community in India. To keep this movement going, the current live exchanges are putting in their best to keep the crypto-community in India going.
We asked a similar question to Nischal Shetty, the CEO of one of India’s largest exchanges – WazirX about how the team thrives? And how they deal with the current limitations of crypto banking bans? He said:
“As a business we’ve evolved with the help of P2P to an extent that we’re able to grow our revenues every month. However, we believe our growth would be 10 times more if banking channels open up and our regulators bring in clarity for everyone. Exchanges around the world are getting positive vibes from their Governments while Indians are still waiting. The entire world is building a new financial infrastructure and India should join in sooner than later. [sic] “
Nischal has always been one of the biggest influencers of the community and one of the biggest accelerators of the #IndiaWantsCrypto movement. The team at WazirX has shown constant support towards the crypto-community and are bullish on the growth that has yet to come.
In the same spirit, of building and development, the CEO of Bitbns Gaurav Dhake said:
Necessity is the mother of invention. Any challenge that was thrown to us we overcame it. Regulatory clarity would help but that was a bottleneck we long overcame. We invented we got new things and thrived and still growing. We are launching in a new country next week 🙂 [sic]
While the crypto community had to bid goodbye to one of the oldest exchanges, we can celebrate the efforts, the rest of the exchanges are still putting forward.
Right from tackling questions such as “Sirji when Bitcoin to the moon?” to “What is a blockchain” the exchanges in India are patiently working with the crypto-community and as per my personal view I have seen it grow quite a lot over the years.
Although I’m still sure we are going to face more questions regarding the legality of Bitcoin and how legit ICOs are, I believe we together can change the definition of financial management and sovereignty being the biggest democratic country in the world.