Action against offshore crypto exchanges operating in India under money laundering laws may deprive local exchanges of much-needed liquidity and complicate their plans to move abroad, three industry executives said.

The finance ministrys Financial Intelligence Unit (FIU) on 28 December wrote to Binance, KuCoin and seven others that any exchange offering services to Indian users must register as a reporting entity, and file statements with the income tax department. The FIU also recommended blocking the web addresses of these exchanges in India.

Exchanges like Binance remain the key source of liquidity for most Indian exchanges, who also use an arbitrage margin of nearly 10% in any crypto token trade through them, since they do not really hold crypto reserves. This makes them reliant on major global exchanges, who are also at a beneficial place when it comes to the overall taxation regime. India also does not have a dedicated crypto law, all of which points to an unfavourable, unsustainable situation that Indias crypto exchanges need to first solve," said

Sidharth Sogani, founder and chief executive of Crebaco, a cryptocurrency research firm.

Attracting liquidity has historically been one of the biggest challenges for crypto exchanges worldwide, including the defunct FTX. Exchanges, including many in India, accept orders in Indian rupees to hold crypto token orders, using larger exchanges such as Binance to get access to being able to buy or sell any crypto token.

Crypto trades and profits in India are subject to 30% income tax, while a further 1% tax deduction at source (TDS) is mandated on every transaction conducted through India-based crypto exchanges. Since the introduction of these taxes, in 2022, crypto trading volumes in India have plummeted.

Data sourced by Mint from Crebaco showed a drop of 93% and 60% in daily average trading volumes in WazirX and CoinDCXtwo of Indias top crypto firmsbetween March 2022 and now. Volumes could fall further with the action against the foreign exchanges.

One of the executives cited above also agreed that taxation and liquidity pose significant challenges in an already-ragged crypto market in India.

The 1% TDS on all crypto trades is a massive hit for exchanges in India, since it takes away heavily from the prospect of arbitrage trading. This leaves exchanges such as CoinSwitch and CoinDCX at a precarious spot in terms of liquiditywhich is primarily derived only when there is healthy trade in the industry," the executive said.

CoinDCX and CoinSwitch did not respond to queries till press time.

The FIU action has complicated exchanges plans to move offshore, a second person added.

For most of these crypto exchanges, the offshore moves were largely designed to ease compliance and taxation issues, which have been significantly complicated in India. The latest notice wouldnt make a big difference to the likes of Binance or KuCointhey are anyway not keen on setting up elaborate India operations or go out of their way to comply with regulations in India. What this will affect are Indian exchanges and startups, who will likely cancel their moves abroad since that will not make any difference to a large extentstrategically or financially," the executive said.

Both executives agreed that a move abroad would only make sense if Indias exchanges were able to proliferate the crypto-forward global markets, and build their own liquidity and reserves.

Most exchanges are projecting a bullish future amid a strong, sustained rally for Bitcointhe bellwether token for the global crypto industry. The price of one Bitcoin token has risen from around $27,000 in October last year, to $47,000 last weeka 74% increase.

The rally has largely been fuelled by talks of the introduction of an exchange-traded fund (ETF) for Bitcoin in the US. Even as Indian exchanges hope this brings some dormant users back into the fold, a smorgasbord of challenges including regulations, taxation and liquidity may not help them soar with the rising tide.

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FIU action bodes ill for local crypto exchanges | Mint - Mint

Crypto exchange Binances market share experienced a significant decline last year to 44.5%, according to data from Paris-based crypto intelligence platform Kaiko.

This decline follows a three-year upward trend, where Binances market share surged from 22% in 2020 to peak at 60% in 2022. However, the subsequent regulatory hurdles across several jurisdictions contributed to the downturn of its market share during the past year.

Due to regulatory non-compliance issues in 2023, Binance withdrew from Canada, the United Kingdom, and various European countries, including Austria, Cyprus, the Netherlands, and others.

However, the primary catalyst for its market share decline stems from the regulatory problems it encountered in the United States, where federal agencies like the Commodities Futures Trading Commission (CFTC), the Department of the Treasurys Financial Crimes Enforcement Network (FinCEN), and the Office of Foreign Assets Control (OFAC), brought legal actions against it.

The Justice Department said Binance, the worlds largest crypto exchange, prioritized growth and profits over compliance with U.S. law and was charged accordingly.

The regulatory actions resulted in its CEO and co-founder Changpeng Zhaosresignation and the agreement of a record $4.3 billion settlement with the authorities. Zhao is currently in the U.S., awaiting sentencing for his role at the crypto trading platform.

Despite this development, the U.S. Securities and Exchange Commission (SEC) remains a formidable challenge for Binance, with pending charges against the exchange and its U.S. affiliate. The regulator alleges that the firm was involved in listing unregistered securities, asset commingling, and market manipulation.

Additionally, the SEC classified Binance-related cryptocurrencies like BNB and the BUSD stablecoin as securities.

Notwithstanding the market share decline and regulatory battles, Binance attracted 40 million new users in 2023, increasing its user base to 170 million worldwide. The company also stated that it spent over $200 million to bolster its regulatory compliance efforts last year.

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Binance dominance fell to 44% last year amid mounting regulatory and legal woes - CryptoSlate

Binance, a global cryptocurrency exchange catering to over 171 million users worldwide, has been at the forefront of the crypto landscape since its establishment in 2017.

Known for its user-friendly interface and competitive transaction fees, Binance has recently found itself in the midst of significant developments, notably the resignation of its CEO, Changpeng Zhao, who also pleaded guilty to criminal charges.

Following Zhaos departure, Binance Coin (BNB), the native cryptocurrency of the platform, experienced a noticeable drop in price. However, recent market trends indicate a rebound, with BNB currently trading at $319, reflecting a 0.5% surge in the last 24 hours.

Also read: Ripple (XRP) or Cardano (ADA): Which Coin Will Hit $1 in January 2024?

As the entire cryptocurrency market trades in the red at press time, attention turns to predicting the trajectory of BNB and how high it can go in January.

Cryptocurrency experts at Changelly delve into BNBs historical behavior, particularly at the onset of 2024, to offer insights into the potential price movements for January 2024. The predicted range suggests a BNB price of $445 during the month, with a projected minimum of $318 and a maximum reaching $572.

Also read: Ripple (XRP) Soars, Eyes $0.80 Amidst New User Surge

Market conditions and price action will play pivotal roles in determining whether Binances BNB coin can sustain its upward momentum into January 2024. Changellys prediction reveals that BNB can easily hit $350 by January 8, 2024.

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BNB Shows Signs of Recovery; Will Binance Coin Hit $350 in January? - Watcher Guru

Monero (XMR) recently suffered losses, facing rumors and factual news regarding its delisting from Binance and OKX, respectively. Other privacy coins may face a similar fate, together with some high-volatility and risky cryptocurrencies, according to Binance.

In a recent announcement, the leading exchange by market volume listed 12 cryptocurrencies under watch. These assets will hold special tags limiting their trading for an exclusive selection of traders.

In particular, Binance threatens to delist 10 of the 12 under its Monitoring Tag. The well-known privacy coins Monero, Zcash (ZEC), and Firo (FIRO) are featured in the list.

Moreover, Aragon (ANT), Keep3rV1 (KP3R), Mdex (MDX), MobileCoin (MOB), Reef (REEF), Vai (VAI), and Horizen (ZEN) are also mentioned. Together with GMX (GMX) and SushiSwap (SUSHI) under the Seed Tag, due to higher volatility and risks, the announcement stated.

As described by Binance, coins under the monitoring and seed tags have higher volatility and risks than other cryptocurrencies. The former is for closely monitored projects, with constant reviews threatening their delisting from the platform.

Tokens with the Monitoring Tag are at risk of no longer meeting our listing criteria and being delisted from the platform.

However, Monero has shown considerably lower volatility than most projects in the previous year. This raises questions about what risks Binance is considering to tag it under this category.

Meanwhile, the seed tag is meant for innovative projects, in Binances words, with higher volatility and risks. Notably, both GMX and SushiSwap are competitors to the leading exchange, providing trading services in decentralized finance (DeFi).

Binance will require investors to answer quizzes correctly every 90 days to allow trading cryptocurrencies under the monitoring and seed tags. The exchange also communicated they will display a warning for these assets everywhere.

All things considered, the aforementioned projects might face liquidity issues in the coming days. Nevertheless, Investors could decide to migrate from Binance to alternative platforms and competitors to access their desired cryptocurrencies and privacy coins.

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Binance threatens to delist these privacy coins - Finbold - Finance in Bold