TLDR
- Coinbase is seeking regulatory approval to restart operations in India after leaving the market in 2023
- The exchange follows Binance’s path, which successfully returned to India in August 2023
- India maintains strict crypto regulations with 30% income tax and 1% transaction tax
- Coinbase’s Chief Legal Officer has joined the U.S.-India Business Council board
- Indian authorities are reviewing crypto regulations with new policies expected in late 2024
American cryptocurrency exchange Coinbase has begun discussions with Indian regulatory authorities to restart its operations in the country. The move comes over a year after the exchange halted its services in June 2023, according to sources close to the matter who requested anonymity due to the confidential nature of the talks.
The exchange is working closely with the Financial Intelligence Unit (FIU-IND), India’s financial transaction monitoring agency, to secure necessary approvals. This renewed effort follows the successful return of Binance to the Indian market in August 2023, after the world’s largest crypto exchange addressed compliance issues that had led to a seven-month ban.
Coinbase’s previous venture into India ended abruptly in 2022 when the exchange attempted to launch services with United Payments Interface (UPI) support. The operation lasted only three days before suspension, as the National Payments Corporation of India declined to recognize Coinbase’s presence in the market.
The challenging relationship between cryptocurrency firms and traditional banking institutions continues to shape the Indian market. While crypto trading remains legal, banks generally avoid serving digital asset companies to maintain favorable relations with the Reserve Bank of India, as reported by industry participants.
Indian authorities currently enforce strict cryptocurrency regulations, including a 30% tax on income from digital assets and a 1% tax-deducted-at-source on all transactions. These measures, implemented in 2022, have influenced market growth and trading volumes.
Paul Grewal, Coinbase’s chief legal officer, has taken a step toward strengthening U.S.-India business relations by joining the board of directors of the U.S.-India Business Council. He emphasized India’s expanding role in the web3 ecosystem, pointing out that the country’s portion of global web3 developers has grown from 3% to 12% since 2018.
Cryptocurrency Regulation
The Indian government appears to be reassessing its approach to cryptocurrency regulation. A discussion paper on digital assets, originally planned for release in September 2024, is being revised as authorities consider regulatory developments in other jurisdictions, including recent policy changes in the United States.
Coinbase’s potential return could help fill a market gap created by the collapse of WazirX, an Indian exchange that lost approximately half of its reserves in a security incident. Currently, CoinSwitch and CoinDCX, both receiving investment support from Coinbase, hold leading positions in the Indian crypto exchange market.
The exchange’s spokesperson expressed optimism about Indian market opportunities, confirming their intention to meet all regulatory requirements. However, they provided no specific updates regarding their FIU registration progress.
This latest initiative aligns with Coinbase’s broader international expansion strategy, as discussed by CFO Alesia Haas during a recent Goldman Sachs conference. The company has already made progress in other markets, receiving authorization from the UK’s Financial Conduct Authority for its subsidiary to provide direct crypto services to British customers.
The FIU previously identified several exchanges, including Kraken and Binance, as operating illegally in India. These platforms have since worked to comply with FIU requirements, which mandate comprehensive disclosure of user activities.
India’s cryptocurrency market, while smaller than traditional financial sectors, holds strategic importance for global tech companies. The country’s large population and growing digital adoption rates make it an attractive market for cryptocurrency exchanges.
The timing of Coinbase’s return depends on regulatory approval processes, particularly securing an FIU operating license. The company appears to be taking a more measured approach compared to its previous entry attempt, focusing on full compliance with local regulations.
Recent developments in India’s web3 ecosystem show promise, with the country maintaining one of the fastest-growing developer communities globally. This growth continues despite regulatory challenges and banking sector hesitation.
The current market leaders, CoinSwitch and CoinDCX, maintain their operations while Coinbase works through the regulatory process. Both exchanges have established strong positions in the Indian market while benefiting from Coinbase’s strategic investments.
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