WazirX app (Image: Shutterstock)
Jaskaran Arora, 27, who runs a digital advertising agency in Mumbai, has been investing in cryptocurrencies through WazirX for four years now. The platform has been his go-to suggestion to any friends and family wanting to invest in crypto tokens, especially over the past one or two years. A major reason for that has been that WazirX is backed by Binance.
“I was comforted earlier by the fact that WazirX is owned by Binance. So, whatever issues would have cropped in, will eventually get resolved. But now, knowing that there’s no link between the two companies, I don’t know what I’ll do,” Arora told Moneycontrol.
“When this space (cryptocurrency) gained popularity in India about two years ago, a lot of people reached out to me for knowledge and help. I suggested them to go with WazirX for the sole reason that it was backed by Binance. Now, after getting to know the situation, they are asking me what to do next. Personally, I will be transferring my funds in crypto token format to either MetaMask or some other crypto wallet. I would suggest them the same,” he added.
WazirX, India’s largest cryptocurrency trading platform accounting for over 50 percent of trading volumes in the country, found itself oscillating between a statement from the Enforcement Directorate (ED) saying its bank assets worth Rs 64.67 crore had been frozen and its previously known owner Binance disowning it over a series of tweets on August 5 night, saying it never had any equity stake in the firm.
The ED was taking action against a WazirX director for assisting several accused instant loan app companies in a money-laundering case via purchase and transfer of virtual crypto assets.
Binance’s CEO Changpeng Zhao (CZ) said a few hours later that it didn’t have any access to WazirX’s user data, KYC details, etc. and that the daily operations were managed by the co-founders of Zanmai Labs, which includes WazirX’s CEO Nischal Shetty.
The shocking revelations quickly escalated to a full-blown debate between Shetty and CZ on Twitter over the next few days. On August 8, a senior Binance executive spoke with CNBC TV-18 sharing that the complete takeover never took place and the Binance team got to know about the ED investigation through news sources.
Binance also said it would not engage with WazirX in future.
“CZ and Nischal Shetty are very popular personalities in their fields. CZ with his 6.7 million followers on Twitter has been touted to be a legend of sorts in the crypto industry. The way they are publicly sparring on Twitter will impact the image of the crypto industry in a big way. The industry is right now going through a regulatory clampdown and this will further tarnish the image of this sector,” Karthik Srinivasan, independent communications strategy consultant told Moneycontrol.
He added, “The trust of the people, too, has been broken. If users had entered some of these spaces believing these two personalities, they will be doubly hit by this situation along with the regulatory uncertainties.”
For 36-year-old Nimit Jain, an entrepreneur from Kota, the government’s recent 1 percent tax deducted at source (TDS) and income tax on virtual assets were reasons enough to stop transacting on WazirX, knowing that it was owned by a foreign entity, Binance.
Now with the shocker and uncertainty that Binance owns only WazirX’s brand IP and not the operations or even equity, Jain will decidedly stay clear of the platform, at least in the near future. Jain has been investing in cryptocurrencies for seven years now.
“I had concerns around how regulations would play out when the Binance and WazirX acquisition was announced. I usually prefer WazirX and Zebpay. The recent developments have been shocking and created a sense of insecurity for investors around what would happen to WazirX. Now, there are some issues regarding the credibility of the platform. Hope they had shown some maturity about it,” Jain told Moneycontrol.
He added, “The branding that was used in the past two years gave a lot of credibility and assurance to WazirX. All investors who had used WazirX believing they were linked to Binance, are left feeling cheated.”
Community’s opinions divided
While CZ is one of the pioneers of the crypto industry globally, Shetty is the poster boy for the cryptocurrency movement growing in India. Shetty had been a relentless advocate of cryptos even during the years of a blanket ban on crypto trading in India.
This gives Shetty a dedicated fan base not just among retail investors but also influencers and cryptocurreny experts online.
Kashif Raza, Founder, Bitinning, told Moneycontrol, “Frankly, most of the users were there on WazirX not just for Binance. Binance came into the picture in 2019. In 2018, users still preferred WazirX because of its ability to come up with good solutions. Nischal Shetty came with this great background of building Crowdfire earlier in his life. Shetty had credibility and came up with great solutions during the ban. WazirX was the number one exchange in the country.”
“But now the problem is neither Shetty nor Binance is confirming the ownership of WazirX. In the middle of all of this chaos, how can you expect the user to feel secure and confident about their assets? I won’t be surprised if WazirX, as an exchange, sees the lowest volumes and things get worse, though they are really trying hard to make people understand their assets are safe and funds can be transferred. But I don’t think users will believe them during this chaotic time,” Raza added.
Meanwhile, Binance said it will ask Indian users to transfer their crypto assets to Binance.com directly, which will help the company service them better.
Raza said many users do not want to hold crypto assets with foreign exchanges given the regulatory uncertainty, taxation rules and Foreign Exchange Management Act (FEMA) rules.
On August 9, WazirX issued a series of tweets explaining why withdrawing and moving to international exchanges might make the investors unknowingly non-compliant.
Naimish Sanghvi, Founder, Coin Crunch India, said, “It seems Binance was intimidating WazirX’s parent to say that they are not responsible for the latter. But then it came to light that part of it was with Binance and another part with WazirX’s parent Zanmai Labs. Also, Nischal said that the deal was getting stuck because Binance didn’t reveal its own parent entity. To me, this seems to be Binance pushing their way to put out this message that it has nothing to do with WazirX because the ED notification came out. They are also succeeding in this as a lot of users are scared now and are trying to take out their assets from the platform.”
He added, “This is not about right or wrong, it is about who has the bigger power to convince the audience in a certain direction. I think Binance will remove WazirX’s token from their platform soon. The crypto community is divided into factions right now on this issue.”
According to Sanghvi, it is clear that both parties agreed on the wallets being controlled by Binance. “If that’s the case, then whatever withdrawals are done on WazirX is also the data that Binance has. Now everything will come down to what ED does, and how cooperative these companies will be with them,” he said.
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