Binance, the world’s largest cryptocurrency exchange, has faced a setback in the Indian market as local traders shift their allegiance to domestic competitors following regulatory challenges. The acrimonious split between Binance Holdings Ltd. and its Indian affiliate WazirX in 2022 seemed to position Binance as a dominant force, but a recent government crackdown on offshore platforms has altered the competitive landscape.
In late December, Indian authorities initiated restrictions on access to Binance and other foreign crypto exchanges lacking local registrations. This move prompted a surge of Indian traders towards domestic alternatives, including WazirX, CoinDCX, and CoinSwitch Kuber. Many traders reportedly moved their deposits from Binance to these local platforms.
This shift is seen as a relief for WazirX and its counterparts, which had faced challenges in 2022 due to a taxation regime that led traders to opt for offshore exchanges. The recent removal of Binance’s app and those of seven other foreign exchanges from Apple Inc.’s App Store, following a request from the Indian government, further contributed to the growing appeal of domestic platforms.
WazirX experienced a significant increase of about 250% in deposit inflows in the four days following India’s compliance notice on December 28, compared to the preceding four days. Similar trends were observed at CoinDCX, where deposits started pouring in immediately after the regulatory event.
Edul Patel, CEO of Mudrex, stated, “The figures we usually do in 3 months, we’ve been able to realize those in the past two weeks.” Since December 28, Mudrex has witnessed over 30,000 new customer registrations. Estimates suggest that around 70% of the fresh inflows at WazirX and Mudrex originated from Binance, while CoinDCX reported a figure of approximately 40%.
Binance, in response to the developments, stated it’s “working hard to inform constructive policy-making that seeks to benefit every user and all market participants.” However, the exchange did not address questions regarding deposit outflows.
The absence of precise market share estimates among Indian crypto exchanges makes it challenging to quantify the impact of this shift. Binance, which dominated the market in terms of app downloads, faced challenges after a transaction tax introduced in mid-2022 led to increased trading on local platforms. According to CoinDCX’s Sumit Gupta, the levy prompted around 95% of Indian trading to move to offshore venues.
India’s government took action against offshore exchanges after local competitors argued that new taxes in 2022 created an unfair playing field. The Financial Intelligence Unit’s late-December notice asserted that nine offshore platforms, including Binance, were operating illegally in India without complying with anti-money laundering provisions. This led to deposit inflows into domestic exchanges as traders sought compliant and reliable platforms.
While trading volumes remain a nuanced aspect of the shift, with some platforms reporting steady volumes and others noting an uptick, the overall sentiment suggests that domestic exchanges are poised for further gains in the Indian crypto market. The recent developments also underscore India’s scrutiny of Chinese involvement in its crypto industry, with concerns raised about platforms with Chinese origins or founders. The situation highlights India’s ongoing caution regarding Chinese investments and the operation of Chinese companies within the country.