A host of crypto companies are using the peer-to-peer route to help customers convert their fiat currency into digital coins as regulatory uncertainty keeps banks away from such transactions, over five executives told Moneycontrol.
Cryptocurrency exchange and trading platform WazirX has a peer-to-peer platform named WazirX P2P through which users can place their orders to buy or sell cryptocurrencies.
A buyer first places an order to buy Tether (USDT). Upon getting matched with a seller, the buyer pays cash directly to the seller. After the seller confirms receipt of payment, WazirX releases the escrowed Tether to the buyer. A similar process is followed when a client wants to sell cryptocurrency.
In this set-up, the exchange only facilitates the transaction – it does not accept payment from customers nor does it transfer funds to their accounts. All payments are made directly between the buyer and seller brought together by the exchange. The reason is that most banks don’t give their customers access to crypto transactions.
“You can only buy USDT (Tether) through WazirX P2P. That means you will have to buy USDT via P2P first and then use that USDT to buy other cryptos on WazirX,” the exchange said.”
No bank support
Other exchanges that have set up similar systems include Bitbns, which facilitates the sale and purchase of Tether. CoinDCX has launched DCXinsta, a platform to buy 40-plus cryptocurrencies at market prices in under 60 seconds.
According to Sachin Singh, founder of Kassio, a new global crypto asset management platform, crypto payments can be facilitated without a bank’s support with the help of third-party service providers.
“There are multiple platforms that are available for P2P trading where you can convert your fiat currency into stable coin and you can transfer your stable coin directly into Kassio to be used in any kind of service, be it trading or other features,” Singh said.
Stablecoins are cryptocurrencies that are considered more secure than Bitcoin because their value is pegged to a currency, commodity or financial instrument. It has an underlying asset value, which offers a sense of security.
Banks have taken a cautious approach on crypto transactions after the Reserve Bank of India’s warnings on cryptocurrencies amid the present regulatory uncertainty over such digital assets.
ICICI Bank says on its website that in order to ensure the security of customers, it will not allow usage of ICICI Bank credit, debit, and prepaid cards and cross-border remittances towards the purchase or trading of Bitcoins, cryptocurrencies, and virtual currencies at merchants suspected to be dealing in cryptocurrencies or online foreign exchange trading, or both.
Last year, HDFC Bank and State Bank of India sent e-mails to customers against using their services to trade in cryptocurrencies.
Bankers said the biggest challenge in dealing with cryptocurrencies is the lack of clarity on the regulation of the asset. The RBI has repeatedly sounded caution over the use of cryptocurrency and the threat that it poses to financial and economic stability. The central bank has cited multiple risk factors including high volatility, the absence of underlying assets, and its highly speculative nature to warn investors against using cryptocurrencies.
“We have been cautioning against crypto and look at what has happened to the crypto market now. Had we been regulating it already, then people would have raised questions about what happened to regulations,” RBI governor Shaktikanta Das told CNBC-TV 18 on May 23, referring to the recent fall in crypto prices. “This is something whose underlying (value) is nothing. There are big questions on how do you regulate it. Our position remains very clear: it will seriously undermine the monetary, financial, and macroeconomic stability of India.”
In her budget speech on February 1, finance minister Nirmala Sitharaman said income from the transfer of virtual digital assets, including cryptocurrencies and non-fungible tokens (NFTs), will attract 30 percent tax. Additionally, payments made in relation to the transfer of such assets will attract 1 percent tax deducted at the source.
However, the Centre is yet to come out with a law banning or regulating cryptocurrencies. Crypto transaction volumes have declined in India after the Centre’s move to tax profit made on crypto investments. According to Rajagopal Menon, vice president at WazirX, the company’s volumes declined by 40-50 percent since April.
“Last year we closed with $43 billion in trading volumes. This year I do not know whether we will even go close to that… global factors play a role, but in India, we are facing a double-whammy of regulations and lack of rupee options,” Menon said, referring to the unavailability of ways for crypto companies to convert fiat money into virtual assets.
Ordinary cryptocurrency users cannot transfer money directly and this is affecting the sector, Menon said, adding that this was one more reason WazirX’s volumes have fallen dramatically. Banks are no longer willing to work with crypto players, he said.
“The only available option on WazirX is P2P, which is frankly not friction-free. Suppose I need to buy only 100 USDT (Tether), I need to find a seller and it is not instant,” he said.
On reports that WazirX founders Siddharth Menon and Nischal Shetty are shifting base to Dubai, Rajagopal said the founders are “very much around” but have started their other ventures.
“If you have Jack Dorsey who can run three companies, Elon Musk running 4-billion-dollar companies, why can’t Indian founders run multiple companies? That is what is happening here. My founders are still very much around – it’s only that they have started other ventures other than WazirX.”
According to Debayan Gupta, assistant professor of computer science at Ashoka University, regulations are needed for crypto in the interim period as more people are adopting the currency and are prone to losses.
India's cryptocurrency market expanded 641 percent on a year-on-year basis, driving the growth of digital currencies in central and Southern Asia, according to a report by Chainalysis last year.
Across all cryptocurrencies tracked by Chainalysis, the total transaction volume grew to $15.8 trillion in 2021, up 567 percent from 2020’s totals.
But along with wider adoption, frauds are also increasing. Cryptocurrency-based crime hit a new all-time high in 2021, with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020, as per Chainalysis’ latest report.“What do we do in the meantime is the question. Every day, people are getting into trouble because it is not regulated. The current solution is that there needs to be some kind of stop-gap solution, a temporary framework where you self-regulate,” Gupta said. “There needs to be an understanding between governments and industry.”