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Coinbase Suspension: How Disastrous for India’s Crypto Market?

Coinbase has been shut down in India to block cryptocurrency transactions by NPCI

It is a development somewhat surprising and not exactly good for the Indian crypto market. On 7 April 2022, Coinbase, the crypto exchange, was launched with fanfare in India. But it took only seventy-two hours or so to shut it down. What exactly happened behind the screen is not known yet. But the outcome is that the National Payments Corporation of India (NPCI) has decided to prevent, at least temporarily, its effort to facilitate the purchase of cryptocurrencies through the United Payments Interface (UPI). In a straightforward statement, the NPCI has made it clear that it has not been aware of any crypto exchange using UPI in the volatile crypto market. How does one view the state of India’s crypto market in light of this development? Does it signal its decline in cryptocurrency transactions of some sort?

UPI has been promoted as a simple and fast payment system for some time and Coinbase may have its reasons to opt for this specific payment system. But the ultimate leverage of UPI lies with the NPCI which is composed of major public and private sector banks and is an organ of the Reserve Bank of India. Coinbase claims that it is seeking clarification from the NPCI in this regard but that does not solve the problem. It seems to be a clear case of miscommunication arising out of a lack of clarity in dealing with cryptocurrencies.

It may be argued that the lack of clarity found in this case is only a symptom of the fact that there is little clarity insofar as the operations of the crypto firms in India is concerned. It is an open secret that the regulatory agencies in the country, including the Reserve Bank of India (RBI), have consistently harbored suspicion about cryptocurrencies, especially because they are not legal tenders in this country. This has led crypto firms to adopt various acts of maneuvering (or manipulation) to enter and operate in India. Even if Coinbase assures that it is ready to conform to the NPCI rules and norms as part of its strategy of adaptation to local regimes it may not take much time for it to come out with alternative payment methods by tying up with some other partners.

In the specific context of the Coinbase issue, another point is important. It is not that in India laws and regulations are in place prohibiting crypto transactions through UPI. But keeping in mind the negative attitude of the concerned regulators the banks do not find it a wise move to display enthusiasm about cryptocurrencies. All this results in crypto exchanges being subject to a very ‘dynamic’ situation in which there is constant change in IDs to bypass preventive acts of the financial regulators.

It is interesting to note that the UPI is ultimately controlled by the Ministry of Finance, Government of India. It is incidentally the same ministry that only recently has imposed crypto tax in India. So, it may be a bit too premature to say that the Coinbase incident is such a blow that it is going to sink the crypto market in India. However, there is little doubt that the market has a long and arduous struggle ahead which includes navigating through regulatory uncertainty.