Cryptocurrency exchange CoinDCX has temporarily halted its offline cryptocurrency withdrawal feature, which has raised concerns among users.
B2B reported on June 21 that recent liquidity crises at several institutions, including Celsius Network, which paused cryptocurrency withdrawals and transfers, have stirred fear among Indian retail.
In this context, CoinDCX's decision to restrict cryptocurrency withdrawals has caused a furore on social media.
“The restriction is an enhanced measure to strengthen our safety protocols and has been implemented in phases over the past month for multiple users,” a CoinDCX spokesperson said in a statement. “This step includes a number of steps, such as improving Know Your Customer (KYC) coverage, improving the risk framework for depositing and withdrawing cryptocurrency, and integrating with compliance and monitoring tools.”
After the issue gained traction on the Twitter microblogging platform, CoinDCX Chief Marketing Officer Ramalingam S. wrote on June 20 that “While some wallets are undergoing maintenance, there are higher compliance requirements due to evolving needs and regulations leading to increased scrutiny. The new process is being rolled out to stages and will reach all users in due course.”
This company followed up with a blog post on the same day, informing users that the exchange would be publishing a policy in the next 14 days.
Users say CoinDCX halted cryptocurrency withdrawals sometime in May, for no compelling reason. It initially said the pause was due to "an ongoing wallet maintenance service."
“They should have informed the user that they will not be able to withdraw funds after this date,” said Vaibhav Gupta, a trader at CoinDCX. "You have to give that window."
Retail investors say CoinDCX’s decision to abruptly pause crypto withdrawals and allow rupee withdrawals only in a bear market has prevented them from cutting their losses and moving their crypto assets to other platforms that can offer better selling prices.
Major cryptocurrencies have lost more than 70% of their value from all-time highs due to high inflation, high interest rates, the conflict between Ukraine and Russia, and fears of a looming recession.
Retail investors may not have any legal recourse either.
Legal experts say they can only open a dispute under the dispute settlement mechanism if the restriction violates terms agreed with the exchange.
“In the absence of a clear regulatory framework, cryptocurrency exchanges are free to regulate withdrawals as they see fit and efficient. However, if the provision is unfair, the law may be reluctant to enforce it,” said Matthew Chaco, Partner at Spice Route Legal. This is a litigator's nightmare, because the terms fairness and injustice are vague."
Cryptocurrency trading platform CoinSwitch Kuber also discontinued its crypto withdrawal feature last year, citing “deliberations on provisions of the Foreign Exchange Management Act (FEMA) and all other applicable laws.”
“The Reserve Bank of India has always been concerned about the unregulated proliferation of crypto exchanges and investors in India,” said Anupam Shukla, partner Pioneer Legal.
While cryptocurrency exchanges act only as intermediaries and technology platforms, and may not violate FEMA provisions, the transactions they facilitate, especially for foreign wallets, may be a concern for the Reserve Bank of India from a FEMA perspective, Shukla said.
“The lack of KYC and anti-money laundering regulations for cryptocurrency transactions must also be reconciled with India’s exchange control laws,” Shukla added.
Also Read: Vodafone Idea raises Rs 436 cr from Vodafone Group