It is akin to a ‘demonetisation moment’ for the local crypto exchanges who had committed to abide by the country’s laws which the authorities have been pressing for quite some time. The crypto assets held by these non-FIU compliant exchanges are likely to witness a shift towards exchanges that adhere to FIU compliance. At the forefront of this shift are entities like Mudrex which is registered with the FIU in India and as a Virtual Asset Service Provider (VASP) in the EU. It is likely to experience a strong influx of crypto assets, thanks to its seamless process that allows investors to transfer assets to Mudrex wallet in less than 15 minutes.
One school of thought suggests that these nine exchanges, not wanting to lose access to the Indian markets, may strive to become FIU compliant following the notice that they have received. However, even if they were to comply, the movement of crypto assets to FIU compliant exchanges seems inevitable for a simple reason. For any investor holding crypto assets or for that matter any financial asset, the trust that their assets are safe and accessible at any point of time is of utmost importance. It is similar to the faith that a person has in a bank. The moment there is even an iota of doubt that the bank might be in financial trouble, there is a ‘run on the bank’. There are enough examples in the recent past, both in India and in the US, where at the first sign of trouble, funds swifty moved out from those banks. This underscores how trust and confidence in the safety and accessibility of assets prompt investors to take proactive measures, emphasising the significance of compliance and security in the crypto market as well.
For investors who are using non compliant crypto exchanges, there’s a risk of potential loss of losing their holdings. Consequently they are likely to move their assets out to locally operated and FIU compliant entities.
Moreover, the Financial Intelligence Unit’s (FIU’s) action signifies a significant policy shift – a recognition at the policy making level that it is futile to make an attempt to curb or make crypto assets illegal. Instead it would be more sensible to regulate and establish safeguards and systems for transparent trading of crypto assets, with taxes being collected on them in a manner similar to other asset classes. This shift was evident during the last G-20 meeting where terms like ‘banning’ and ‘curbing’ were replaced by words like ‘consensus’ and ‘regulation’. This change was probably the first indication of a growing understanding of crypto by governments across the world.
