India blocks access to major offshore crypto exchanges

India has reportedly suspended access to numerous foreign cryptocurrency exchanges, such as Binance, KuCoin, and OKX. 

According to the Economic Times, this action follows a period of continued non-compliance with the Financial Intelligence Unit’s (FIU) official requests for clarification from the crypto exchanges.

The block also extends to the Android versions of these exchanges, based on orders already put into effect, as confirmed to the local press by a high-level government source.

Earlier in the week, Apple set a precedent by removing these offshore exchanges from its App Store following a show-cause notice issued by the FIU under the finance ministry.

The move came after the FIU raised alarms over suspected money laundering activities on the affected platforms and advised a ban until they comply with the country’s crypto regulations. 

To rectify the situation, the FIU reportedly sent notices on Dec. 28 to nine exchanges, including Binance, requesting justification for their unlicensed operations in India.

The IT ministry was also urged to block URL access to these platforms, leading to the current government action.

This blocking of foreign crypto platforms has inadvertently boosted registrations on domestic exchanges. After India introduced a 30% tax on crypto profits and a 1% TDS on transactions, Indian crypto traders started shifting their funds to offshore exchanges, leading to a significant drop in trading volumes on local platforms in 2023.

However, with the recent access restrictions to Binance and other foreign exchanges operating without local registrations since late December, traders have reportedly begun migrating to their domestic counterparts like WazirX, CoinDCX, and CoinSwitch Kuber.

WazirX reported a 250% surge in deposit inflows within four days of the Dec. 28 compliance notice sent to the foreign exchanges, compared to the preceding four days. 

Speaking to the Economic Times, Edul Patel — CEO of Y Combinator-backed platform Mudrex — reported a similar trend, stating, “The figures we usually do in 3 months, we’ve been able to realize those in the past two weeks.”

However, this sudden change has also left many Indian crypto investors in a quandary, with substantial assets stuck in the blocked foreign platforms’ wallets.

Industry estimates suggest approximately $4 billion in crypto assets remain offshore to sidestep the 1% tax, with Binance reportedly holding 80% of this amount.