The largest cryptocurrency exchange in the world appeared to be virtually unbeatable in the local market when Binance Holdings Ltd. and its Indian partner WazirX parted amicably in 2022, while WazirX was struggling. This government crackdown on offshore platforms has completely changed the nature of competition.
Trader traffic has shifted to local competitors like WazirX since Indian authorities started limiting access to Binance and other global cryptocurrency exchanges operating there without local registrations in late December. Based on the local venues, a large number of them are transferring deposits from Binance.
WazirX and rivals like CoinDCX and CoinSwitch Kuber, who were severely impacted by a 2022 taxing scheme that pushed traders to offshore exchanges, are grateful for the reprieve. Following the removal of the apps for Binance and seven other foreign exchanges by Apple Inc.’s App Store this week in response to a request from the Indian government, they seem ready for more wins.
In comparison to the four days preceding India’s Dec. 28 compliance show-cause letter to nine offshore platforms, deposit inflows at WazirX increased by around 250% in the four days that followed. Following the event, CoinDCX reopened for deposits, and they started coming in straight away, according to CEO Sumit Gupta.
“The numbers we typically achieve in three months, we’ve managed to attain those in the last two weeks,” stated Edul Patel, CEO of Mudrex, a platform supported by Y Combinator, in reference to deposit inflows and new customers. Since December 28, more than 30,000 users have registered on Mudrex, he continued.
According to WazirX and Mudrex, Binance accounted for almost 70% of their recent inflows, whilst CoinDCX assessed that it was closer to 40%.
Reiterating its remarks from the App Store removal, Binance stated that it is “working hard to inform constructive policy-making that seeks to benefit every user and all market participants.” Regarding deposit outflows, it remained silent.
There are no estimates of the market share of Indian cryptocurrency exchanges. However, since a transaction tax was implemented in the middle of 2022 and destroyed the profitability of frequent trading on local platforms, Binance has dominated the market, as seen by the number of app downloads. According to Gupta of CoinDCX, the tax caused almost 95% of Indian trading to take place on offshore platforms that did not collect it.
After months of lobbying by local competitors who claimed that new levies announced in 2022 created an unfair playing field, the Indian government took action against offshore exchanges. Nine exchanges are operating illegally in India without adhering to anti-money laundering regulations that were put in place last year, according to a notification from the Financial Intelligence Unit of India in late December. The letter invites the exchanges to provide an explanation of how they are in compliance.
WazirX reported that volumes haven’t changed significantly, but CoinDCX suggested that the modest increase in the last two weeks might be more attributable to the general optimism around cryptocurrencies. CoinSwitch, however, reported that in the week after the FIU notified offshore competitors, trading volumes on its platform increased by 30–35%. Following the FIU action, CoinSwitch, like CoinDCX, reopened for deposits.
