Crypto Crackdown: How India’s Ban on Offshore Exchanges is Shaping the Domestic Market - Read Here

India’s crypto landscape is undergoing a seismic shift as the government cracks down on nine major offshore cryptocurrency exchanges, blocking their URLs and restricting their operations within the country. On December 28, 2023, the Financial Intelligence Unit (FIU) issued show-cause notices to some of the world’s largest cryptocurrency platforms, including Binance, Kraken, KuCoin, and Bitstamp. The FIU, which operates under India’s Finance Ministry, flagged these exchanges for failing to comply with India’s stringent anti-money laundering (AML) laws, resulting in the blocking of their URLs and mobile applications.

As India grapples with the growing influence of cryptocurrency, this move signals a clear message: compliance with local regulations is not optional. The blocked exchanges, which include some of the biggest names in the global crypto space, have faced mounting scrutiny for operating without proper registration under the Prevention of Money Laundering Act (PMLA) of 2002. This crackdown marks a new chapter in India’s approach to regulating digital assets, forcing foreign players to rethink their operations and opening the door for domestic exchanges to thrive.

India’s Tough Stance on Crypto

India’s crypto regulations have been tightening for several years, reflecting the government’s cautious approach to virtual currencies. Since 2018, the country has taken a strict stance on crypto trading, introducing rigorous rules to curb potential money laundering and illegal financial activities. In 2023, the FIU intensified its efforts, targeting offshore exchanges that were serving Indian users without proper compliance.

The nine exchanges facing URL blocks—Binance, KuCoin, Kraken, Bitfinex, Bittrex, Gate.io, Huobi, Bitstamp, and MEXC Global—failed to register with the FIU, as required by law. The FIU’s show-cause notice emphasized that these exchanges were operating “illegally” by not adhering to the PMLA’s requirements. Specifically, the regulation mandates that any virtual digital asset service providers (VDA SPs), whether domestic or foreign, must register with the FIU as a “Reporting Entity” to operate within India.

FIU’s Ban: A Boon for Domestic Crypto Exchanges

As international crypto giants face the axe, domestic exchanges are gearing up for a potential influx of users. The FIU’s move is expected to redirect significant crypto trading volume from banned offshore platforms to Indian exchanges. Platforms like CoinDCX, WazirX, ZebPay, and Unocoin are fully compliant with Indian regulations and stand ready to accommodate new users seeking a safer and more reliable trading environment.

CoinDCX, known for its robust security protocols and transparent operations, is one of the leading platforms that could benefit from this shift. ZebPay, with its reputation for offering high interest on idle crypto holdings, and WazirX, boasting over 6 million users, are also expected to see an increase in registrations. Mudrex, another prominent Indian platform, has positioned itself as a long-term crypto investment solution, further attracting investors wary of short-term risks in the volatile crypto market.

Global Giants Scramble for Compliance

Although the FIU’s ban has shaken up the market, some of the affected exchanges have already begun working towards compliance. KuCoin, for instance, announced in March 2024 that it had met FIU-IND regulations and paid a penalty of INR 34.5 lakh to resume operations. Binance, the world’s largest cryptocurrency exchange, followed suit, settling with a $2.25 million fine to restart its services in India.

These developments highlight the growing importance of adhering to local regulations in global markets. With India emerging as a major hub for cryptocurrency adoption, global platforms like Binance and KuCoin are eager to regain access to the market. However, they must first navigate India’s complex regulatory environment, which requires strict adherence to AML laws and transparency in financial transactions.

What Should Indian Crypto Investors Do?

For Indian crypto users still trading on international platforms, the FIU’s actions serve as a wake-up call. To safeguard their assets, investors are advised to move their holdings to domestic exchanges registered with the FIU. The Indian government has made it clear that platforms operating without registration will face severe penalties, and users may find themselves unable to access their assets if these platforms are blocked.

Fortunately, domestic exchanges like CoinDCX, Unocoin, WazirX, ZebPay, and Mudrex offer a secure alternative. These platforms are fully compliant with Indian regulations and provide a wide array of cryptocurrencies for trading and investment. Additionally, many of these exchanges offer user-friendly interfaces, advanced trading tools, and self-custody wallets, ensuring that users can easily manage their digital assets without the risks associated with offshore platforms.

India’s crypto crackdown on international exchanges is part of a broader trend toward stronger regulation of the digital asset market. While this may create short-term disruptions for global platforms, it also signals a maturing of the Indian crypto ecosystem. By enforcing stricter compliance, the FIU is ensuring that the Indian market remains transparent, secure, and resilient against financial crimes.

As domestic exchanges continue to grow and adapt to the evolving regulatory landscape, India’s crypto future looks promising. The country’s massive population, combined with its increasing adoption of digital finance, makes it one of the most important markets for cryptocurrency globally. The ongoing regulatory efforts may also serve to attract more institutional investors, who have so far been cautious due to the lack of regulatory clarity.

In the long run, India’s focus on compliance and transparency could strengthen its position as a global leader in cryptocurrency, offering both safety and innovation in the digital asset space. As the dust settles from this latest crackdown, the Indian crypto market is poised for significant growth, with domestic exchanges leading the charge.