Cryptocurrency has long been a black sheep in the eyes of the Indian government, mainly due to the ease with which it can be used to launder money. However, the halt on regulations has negatively affected multiple players in the Indian cryptocurrency ecosystem.
Late last year, cryptocurrency exchange platform Zebpay was forced to shutter operations due to regulators locking down on their operations. Now, exchange platform Unocoin seems to be on the same path, as it announced that it would be laying off over half of its remaining employees.
In the world’s fastest growing economy, regulation has begun to stifle innovation. Regulators in the country have a long history with cryptocurrencies.
An Early Focus On Cryptocurrencies
The Indian government narrowed down its focus on Blockchain during Budget 2018, where the then Finance Minister Arun Jaitley stated that the government does not recognise cryptocurrencies as legal tender. In the same speech, he also remarked that there would be action taken against those who used it for illegal purposes.
This was only the beginning, as Reserve Bank of India dropped a notice in April of last year cautioning that “users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.”
After stating this, RBI further said that any and all entities regulated by them will not provide services to individuals or business entities dealing with cryptocurrencies. While this meant that the currencies could still be used within the country, it meant that exchange platforms could not interface with the banking system, due to the ban imposed by the RBI.
This was mainly due to the reported use of cryptocurrencies during the demonetisation period, as many individuals with a large amount of black money utilised cryptocurrencies to move money out of the country and into indetectable financial instruments. This could be one of the reasons for RBI to follow a heavy-handed approach to regulation in the country.
Many exchange platforms tried to take RBI to court, which is still in Delhi Supreme Court. While some exchanges adapted to the change and began implementing new methods, this was largely the death knell for many platforms.
The Beginning Of The Exodus Of Indian Blockchain Players
As soon as RBI announced that financial institutions would not be dealing with cryptocurrency-related companies, exchange platforms began removing the option to convert cryptos to INR. This led to a direct drop in the liquidity of the exchanges, with trading volume in the country dropping to a low point.
As there were simply not enough individuals buying and selling using INR, the platforms could not sustain trading on crypto-to-crypto trades alone. This caused many exchanges to begin shutting down, with the first being Zebpay.
In a statement during their shutdown, Zebpay stated,
“The curb on bank accounts has crippled our, and our customer’s, ability to transact business meaningfully. At this point, we are unable to find a reasonable way to conduct the cryptocurrency exchange business.”
At the same time, platforms such as Mumbai-based WazirX began offering P2P trading for their customers. This ensured that liquidity was maintained while staying within the purview of the regulation. This meant that individuals would send the equivalent money directly to the recipient’s bank account, which allowed WazirX to not deal with the banks directly.
However, the exodus did not end. Just 2 weeks ago, an exchange platform known as Coindelta shut down their operations as well. They offered the same reason for shutting down; that the RBI ban simply did not offer them any space to maneuver as an exchange platform. According to the exchange, the curb on the bank accounts left them “handicapped” to continue their operations in the country.
A Crumbling Crypto-Market
The fall of Unocoin to simply 14 staff members is indicative of the state of exchange platforms in India. An anonymous source who worked in the company revealed that the layoffs occurred as talks of a second funding round fizzled out. Currently, the platform has enough reserves to continue operating for a couple of months, Sathvik Vishwanath, Unocoin’s CEO revealed.
Curious Dose also reached out to the CEO of WazirX, Nischal Shetty, to get his thoughts on why this occurred and the state of the market currently.
“[Unocoin shutting down] is a combination of things. The RBI ban, not building P2P, and the bear market in crypto. It’s not a proud moment for the industry. It’s, in fact, unfortunate that it was not competition that’s booting them out, but government policies. The banking ban is causing a lot of trouble in the market, and it is getting difficult for exchanges to effectively do business.”
The ban is causing a lack of clarity for new-age companies to begin experimenting with a new asset class, thus creating a non-conducive environment for new ideas. This strangling of innovation in the cryptocurrency space will only continue to remove more value from the Indian economy.
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