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Crypto Traders Exodus from Indian Exchanges due to High Tax Rate

With the number of downloads of the Binance app leapt to 429K in August, traders are leaving Indian crypto exchanges based on a fallout triggered by a significant tax change.

In India alone, the number of Binance downloads is nearly triple that of crypto exchange CoinDCX, which comes second, according to data from market insight provider Sensor Tower.

Based on an uncertain tax regime on Indian soil, crypto traders are eyeing safer grounds, with Changpeng Zhao-led Binance being the major beneficiary. Per the announcement:

“The 1% levy known colloquially as the TDS came on top of a new 30% tax on gains from the transfer of crypto assets, which is steeper than in many other jurisdictions like the US and the UK.”

Rohan Misra, the CEO of SEBA India, added:

“The recent tax regulation is not explicitly clear on whether the 1% tax deducted at source extends to crypto derivatives transactions involving futures, as it does to crypto spot transactions.”

As a result, Binance is keeping a close eye on the Indian situation, according to a spokesperson.

With Indian-based crypto exchanges having started deducting the levy, traders are switching to foreign peers like FTX and Binance because they have not started the taxation.

Indian exchanges have seen volume slip by more than 90% on crypto transactions since the 1% tax was introduced in July.

If a crypto exchange doesn’t remit the levy, Anoush Bhasin disclosed that this responsibility would be shifted to the seller of the digital asset.

The CEO of crypto tax advisory firm Quagmire Consulting added:

“The government still needs their tax deducted at source, and they’ll get it one way or another; it’s just that the users are not aware of that.”

The crypto space has experienced twists and turns on Indian soil, with a blanket ban on digital assets surfacing at one point.

As a dramatic turn of events, India decided to regulate cryptocurrencies earlier this year, but different taxes have continued to come up.

US Prosecutors Seek Lengthy Sentence for Crypto Shadow Bank Executive

US prosecutors are seeking a lengthy sentence for Reginald Fowler, a former minority owner of the Minnesota Vikings NFL team, over his alleged involvement in shadow banking practices through Crypto Capital Corp, an alleged crypto shadow bank. Fowler’s sentencing is scheduled for April 20, following his arrest in 2019 and subsequent charge with bank fraud, illegal money transfers, and conspiracy connected to his operation of an unlicensed money transmitting business.

In a request filed on April 18, US District Attorney Damian Williams requested a sentence of at least seven years imprisonment for Fowler, with a suggested range of 15 to 20 years to reflect the seriousness of the offense. Williams argued that Fowler’s actions as an unlicensed money transmitter and his alleged deception of financial institutions warranted a significant penalty.

Fowler established a firm called Global Trading Solutions (GTS) in 2018 under the umbrella of the Panama-based Crypto Capital Corp, an alleged crypto shadow bank. Through GTS and Crypto Capital, Fowler is alleged to have provided shadow banking services to several crypto exchanges including Bitfinex, Binance, CEX.io, and QuadrigaCX. Between February and October 2018, GTS and Crypto Capital processed approximately $750 million in cryptocurrency transactions, providing unlicensed crypto firms with unlawful access to the U.S. banking system, according to the filing.

The use of shadow banking practices by Crypto Capital and GTS came to light during the court case regarding Bitfinex’s failure to disclose the loss of $850 million in customer funds. Fowler and Crypto Capital were identified as key players in the case, which was settled in February 2022 with the firms ordered to pay $18.5 million in civil penalties and shut down New York trading operations.

The alleged involvement of Fowler and Crypto Capital in shadow banking practices highlights the risks associated with unlicensed money transmitting businesses and the potential for illegal activities to occur within the crypto industry. The case also underscores the need for stronger regulation and oversight of crypto exchanges and shadow banking practices to prevent illicit activities and ensure the integrity of the financial system.

South Koreans transacted $4.3 billion through illegal crypto exchanges

South Korea has been tightening its regulatory regime towards crypto exchanges, but it seems that some citizens are still engaging in illegal transactions. According to local sources, South Koreans transacted 5.6 trillion Korean won ($4.3 billion) through illegal crypto exchanges in 2022, a significant increase from the previous year. The Korea Customs Service provided the numbers, indicating that the overall amount of funds caught in economic crimes increased from 3.2 trillion won ($2.5 billion) in 2021 to 8.2 trillion won ($6.2 billion) last year.

Out of all the illicit money traffic captured by officers, crypto transactions comprised almost 70%. However, the total amount of intercepted digital assets ($4.3 billion) only accrues for 15 transactions. These transactions were aimed at purchasing foreign virtual assets with the intention of selling them in the country later. This is because the South Korean regulatory regime isolates the local market and makes the prices of foreign crypto higher for customers.

The government has been cracking down on illegal crypto exchanges since 2017, when the Foreign Exchange Transactions Act required entities involved in crypto transactions to get regulatory approval from the Financial Services Commission. Hence, the attempts to participate in the global crypto trade, from foreign players coming to the Korean market or domestic investors seeking a better exchange course abroad, are labeled “illegal.”

In August 2022, the Korea Financial Intelligence Unit took action against 16 foreign-based crypto firms, including KuCoin, Poloniex, and Phemex. All 16 exchanges have purportedly engaged in business activities targeting domestic consumers by offering Korean-language websites, running promotional events targeting Korean consumers, and providing credit card payment options for cryptocurrency purchases. These activities all fall under the Financial Transactions Report Act.

The Korean customs also reported detaining 16 individuals involved in illegal foreign exchange transactions connected to crypto assets worth roughly $2 billion. These cases demonstrate the government’s determination to crack down on illegal crypto transactions and to promote a safe and regulated crypto market.

However, some critics argue that the South Korean government’s regulatory regime is too strict, which has led to the country missing out on potential economic benefits. They suggest that a more balanced approach should be taken to ensure that the country can benefit from the growing crypto market while still maintaining a safe and regulated environment. Regardless, it is clear that illegal crypto exchanges are still a significant issue in South Korea, and the government will continue to take action to address this problem.

Nigeria Plans to Regulate Digital Asset Platforms

Nigeria, one of the most curious nations about cryptocurrencies, is preparing new industry regulations for digital asset platforms. The Nigerian Securities and Exchange Commission (SEC) is considering new regulations that would allow licensed digital exchanges to list tokens backed by certain assets, according to a report by Bloomberg.

Abdulkadir Abbas, the head of securities and investment at the Nigerian SEC, noted that the authority plans to only authorize listings of tokens based on assets such as equity, debt, or property. Cryptocurrencies like Bitcoin and Ether will not be among those assets. The aim is to register fintech firms as digital sub-brokers, crowdfunding intermediaries, fund managers, and tokenized coins issuers. However, the SEC will not register crypto exchanges until the central bank provides clear regulations for the crypto market.

License applicants would undergo a year of “regulatory incubation,” during which the SEC would study their operations and render their services in the country, according to Abbas. He added that by the 10th month, the SEC should be able to make a determination whether to register the firm, extend the incubation period, or even ask the firm to stop operation.

The Central Bank of Nigeria had banned local banks from providing services to cryptocurrency-related platforms in early 2021. On the ban, the regulator cited high risks associated with trading cryptocurrencies such as Bitcoin. The central bank also promised to impose strict penalties for any lender or financial institution failing to comply with the directive.

Despite the ban, Nigeria has emerged as one of the most active countries in terms of adoption and curiosity about Bitcoin and other cryptocurrencies. Nigeria ranks second by search interest for the keyword “Bitcoin,” behind El Salvador, which adopted Bitcoin as legal tender in 2021, according to data from Google Trends. Other jurisdictions in the top-five crypto-curious countries list include Slovenia, Netherlands, and Switzerland.

Nigeria was also among the top 20 countries in terms of crypto adoption in 2022, according to Chainalysis’ crypto adoption index.

While prohibiting cryptocurrencies, the Central Bank of Nigeria has been actively promoting its central bank digital currency known as the eNaira. The eNaira reportedly saw increased adoption due to national fiat reserves facing severe shortages.

In conclusion, Nigeria is taking steps to regulate digital asset platforms, with the SEC considering allowing licensed digital exchanges to list tokens backed by certain assets. The country aims to register fintech firms as digital sub-brokers, crowdfunding intermediaries, fund managers, and tokenized coins issuers. However, the SEC will not register crypto exchanges until the central bank provides clear regulations for the crypto market. Despite the ban on cryptocurrencies, Nigeria has emerged as one of the most active countries in terms of adoption and curiosity about Bitcoin and other cryptocurrencies.

South Africa Sets Year-End Licensing Deadline for Crypto Exchanges

According to Bloomberg, South Africa has mandated that all crypto exchanges operating within its borders must secure licenses by the end of the year. The Financial Sector Conduct Authority (FSCA), the country’s financial regulator, has already received approximately 20 applications since the licensing process was initiated a few weeks ago.

FSCA Commissioner Unathi Kamlana has warned that the regulator will take enforcement action against firms that continue to operate without a license beyond the November 30 deadline. This could result in these firms being shut down or fined. Kamlana explained that the regulatory framework was introduced due to the potential harm that financial customers could face when using crypto products.

South Africa, Africa’s most developed economy, is the first country on the continent to require digital asset exchanges to secure licenses. This move affects several major trading venues that originated from South Africa, including Luno, owned by Digital Currency Group, and Pantera-backed VALR. Global platforms such as Binance that operate in the country will also need to secure licenses.

The trend of intensifying regulations is not confined to South Africa alone. Yesterday, the Monetary Authority of Singapore (MAS) announced that crypto service providers in Singapore are required to place customer assets into a statutory trust by the end of the year for secure storage. This action underscores a global shift towards more stringent regulation in the cryptocurrency sector.

Taiwan's Major Crypto Exchanges Form Association to Align with Upcoming Regulations

Key Takeaways

Taiwan’s leading crypto exchanges form an industry association ahead of new regulations.
The association aims to facilitate dialogue with regulators and integrate the crypto industry.
Nine exchanges are currently part of the preparatory group for the association.

As Taiwan’s Financial Supervisory Commission (FSC) prepares to unveil its “Guiding Principles for the Management of Virtual Asset Service Providers (VASPs)” in September, the country’s major crypto exchanges have taken proactive steps. They have formed a preparatory group, known as the Taiwan VASP Association Preparatory Committee, in early September. The initiative is expected to become legally effective in October, following the government’s release of its crypto framework.

Unified Industry Efforts

The preparatory group consists of nine crypto exchanges, including the first three founders: MaiCoin Group, BitoGroup, and Ace Exchange. Other members are BitstreetX, Hoya Bit, Bitgin, Rybit, Xrex, and Shangbito. “The association is a family and a beacon. It guides us in the direction, collects information, sets standards, builds consensus, speaks on our behalf, and leads us to further progress,” said Wang Chenhuan, President of Ace Exchange.

Regulatory Alignment

The association aims to align with the upcoming regulations by the FSC. “We have a responsibility to lead industry partners in perfecting infrastructure and regulations,” said Zheng Guangtai, Founder and CEO of BitoGroup. He added that BitoGroup has accumulated rich experience in areas like cybersecurity, internal control, anti-money laundering, and counter-terrorism financing over the past decade.

Broadening the Ecosystem

The association is not limited to exchanges and aims to include other key players like traditional banks, fintech firms, accountants, and insurance companies. “The most important work at this stage is to play the role of internal communication. Only through unity and cooperation can we build a robust industry chain,” said Xiao Huizong, Co-founder and Chief Revenue Officer of Xrex.

Transparency and Future Plans

The preparatory group holds weekly meetings every Tuesday afternoon, and the minutes are publicly available on GitBook to ensure transparency. They plan to submit their application to the Ministry of the Interior by mid-October, aiming for the formal establishment of the Taiwan VASP Association by the end of the year.

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Cryptocurrency Detective ZachXBT Uncovers Unusual ETH Withdrawals for MTG Cards

ZachXBT, a renowned cryptocurrency detective, has shared an analysis of a unique and unconventional use of significant cryptocurrency funds. According to his investigation, an unidentified individual withdrew over 11,200 ETH, valued at around $25 million, from Tornado Cash, a cryptocurrency tumbler known for its privacy features. This large sum of money was primarily used to purchase Magic The Gathering (MTG) trading cards, a popular collectible and competitive card game.

ZachXBT meticulously traced the flow of these funds, revealing a complex process involving multiple steps. The individual involved first withdrew the ETH in batches of 100 from Tornado Cash to a total of 11 different addresses. Following this, the ETH was converted to Wrapped Ethereum (WETH), which was then transferred to new addresses. The WETH was subsequently unwrapped back into ETH and converted into USDC, a stablecoin pegged to the US dollar. This USDC was then used to facilitate transactions with an MTG broker.

The identification of the MTG broker was a critical part of ZachXBT’s investigation. He discovered the broker’s involvement through cross-referencing usernames on Instagram and OpenSea, a popular platform for trading digital collectibles. Further inquiries into the broker’s on-chain interactions with MTG sellers provided additional clarity. Interestingly, the buyer’s behavior in these transactions was notable for several reasons. The individual appeared to be overpaying for the MTG items by about 5-10%, and the payments were made upfront in cryptocurrency. Despite these large transactions, the buyer’s identity remained unknown to the sellers.

The investigation also revealed that the funds were distributed to various deposit addresses associated with major cryptocurrency exchanges like Kraken, Bitpay, and Coinbase. This aspect of the investigation suggests a broader network of financial activities and raises questions about the origin and ultimate destination of these substantial funds.

ZachXBT’s analysis does not conclusively establish the source of the funds. However, he considers the possibility that they could have originated from top Tornado Cash depositors such as Anubis, Cashio, and Uranium. This speculation is based on the timing and magnitude of their activities in relation to the withdrawal and spending patterns observed.

This case stands out for its unusual combination of large-scale cryptocurrency transactions and the world of collectible trading cards. The considerable amount spent on MTG cards, along with the sophisticated methods used to mask the money trail, highlights the diverse and sometimes unexpected ways in which cryptocurrency can be utilized. It also underscores the ongoing challenges in tracking and understanding the flow of digital currencies, especially in cases where privacy tools like Tornado Cash are used. The case continues to garner interest as it sheds light on the complex and often opaque nature of cryptocurrency transactions.

South Korea Enacts Legislation for Public Disclosure of Officials' Crypto Holdings

South Korea is planning to enact a new piece of legislation that would require around 5,800 high-ranking public officials to make public disclosures of their cryptocurrencies and other asset holdings. In the aftermath of a number of legislative initiatives that have been undertaken with the intention of boosting openness and minimizing concerns about conflicts of interest in the public sector, this new trend has emerged.

The South Korean government, via the Ministry of Personnel Management, made the announcement that bitcoin holdings would be included in the yearly asset statement that is required of elected politicians and high-ranking government personnel. A comprehensive portal that is created for the registration and evaluation of property declarations made by public officials is a component of the government’s larger “Public Ethics and Transparency Initiative,” which includes this directive as one of its components.

The “Kim Nam-kuk Prevention Act” was overwhelmingly approved by the National Assembly, and it was named after a controversy that involved a former politician for the Democratic Party. By amending both the National Assembly Act and the Public Service Ethics Act, this piece of legislation demonstrates the nation’s dedication to maintaining ethical standards in the realm of public service. There were claims made against Kim Nam-kuk, who was suspected of owning considerable crypto assets, which raised worries about a potential conflict of interest. These allegations were the impetus for the act.

The main domestic cryptocurrency exchanges in South Korea, particularly Upbit, Bithumb, Coinone, Korbit, and Gopax, are scheduled to establish their own information systems by June 2024. This change in legislation is occurring concurrently with the development of these exchanges. It is anticipated that these systems will be of use in the process of property registration, where they will provide a method for monitoring and reporting the cryptocurrency holdings of public authorities.

The South Korean government is working on building a more comprehensive regulatory framework for cryptocurrencies, and this law is a component of that system. Earlier in the month of June, legislators in South Korea enacted 19 measures that were linked to cryptocurrencies. These bills gave the Financial Services Commission (FSC) and the Bank of Korea the authority to exercise supervisory duties over cryptocurrency operators and individuals who own assets. In addition, the Financial Services Commission (FSC) has announced new accounting regulations that will require domestic corporations to report their cryptocurrency holdings beginning in the next year. This is a further step toward regulating and standardizing activities linked to cryptocurrencies in the country.

There has been a substantial change in the governance of digital assets as a result of South Korea’s bold measures towards incorporating cryptocurrency disclosures into its public service ethical framework. Through the implementation of a mandate that requires public officials to disclose their cryptocurrency holdings, the nation is establishing a model for other governments to follow in tackling the difficulties and ethical problems that are associated with the rapidly expanding fields of cryptocurrency.

UK Cryptocurrency Exchanges Adapt to Enhanced Regulatory Standards

The United Kingdom’s cryptocurrency landscape is undergoing significant changes as it aligns with the Financial Services and Markets Act. This pivotal development, marking a substantial shift in regulatory approach, aims to apply rigorous standards, akin to those in traditional financial services, to firms operating with cryptocurrencies and stablecoins.

Cryptocurrency exchanges like Coinbase, Crypto.com, and Gemini have already initiated measures in response to these new regulations. They have introduced risk assessments and finance tests for users in the UK, which include a declaration about their investor profile and a related questionnaire. These steps are critical for compliance with the requirements that demand crypto companies to inform users about the risks associated with trading cryptocurrencies and advertise their services responsibly. Notably, the failure to complete these measures will prevent users from trading with their crypto accounts.

The broader framework for these regulatory changes is set out by the UK Government, intending to balance innovation with financial stability and clear regulatory standards. New specific regulated activities for cryptoassets will be created, paralleling those in traditional financial markets. Consequently, crypto native firms, whose primary business revolves around cryptoassets, will need full authorization and supervision by the Financial Conduct Authority (FCA). Traditional finance firms will also have the opportunity to expand their permissions to include cryptoasset activities.

In addition to the direct impact on firms operating within the UK, these regulations extend their reach to offshore firms providing services to UK clients. These firms will need authorization in the UK, although exceptions like ‘reverse solicitation’ are under consideration. This new regulatory environment encompasses a range of activities including trading, custody, and lending, each with specific requirements. For instance, trading venues must offer fair access rules, transparent fee schedules, and effective conflict of interest management. Cryptoasset intermediation will be regulated akin to the rules for investment firms, emphasizing consumer protection and market abuse detection.

The HM Treasury is also exploring the regulation of decentralized finance (DeFi) and seeking to understand how regulatory outcomes achieved in traditional finance can be applied to DeFi. This includes consideration for cryptoasset investment advice and portfolio management, and how these services align with current regulatory practices.

Hong Kong Sets 50% Insurance Mandate for Crypto Exchanges

Hong Kong’s Securities and Futures Commission (SFC) has recently introduced a new regulation mandating that all licensed crypto exchanges in Hong Kong must insure at least 50% of their customers’ assets. This move aims to enhance the security and trustworthiness of these platforms, particularly in the event of a security breach or insolvency. OSL Exchange and HashKey Exchange, two prominent licensed virtual asset trading platforms in Hong Kong, have responded proactively to this mandate.

OSL Exchange has entered into a two-year partnership with Canopius, a syndicate of underwriter Lloyds of London, to secure an insurance policy that covers a remarkable 95% of its users’ assets. This level of coverage significantly surpasses the minimum requirement set by the SFC. Similarly, HashKey Exchange has signed an agreement with OneInfinity to provide insurance coverage of up to $400 million worth of users’ assets. This coverage may potentially be expanded in the future to include incidents such as server downtime and data back-up issues.

These measures are part of Hong Kong’s broader efforts to regulate the cryptocurrency industry. Since the opening of crypto trading to retail investors in the region last August, OSL and HashKey have been the only exchanges to receive virtual asset trading licenses. Currently, thirteen entities are in the process of applying for such licenses. These licenses require applicants to pass comprehensive due diligence checks, including traditional financial audits that are broader in scope than mere proof-of-reserves.

This insurance mandate not only serves to protect investors but also significantly raises operational standards among crypto exchanges. It could potentially influence other global financial centers to adopt similar protective measures, thereby elevating the safety standards of the global cryptocurrency market.