Cryptocurrency: Crypto Exchanges Try P2P Deals, Direct Deposits To Overcome Payment Restrictions


Mumbai: Several cryptocurrency exchanges facilitate peer-to-peer (P2P) transactions while some platforms directly accept deposits from coin buyers to overcome restrictions imposed by banks and payment companies amid the Reserve Bank of India (RBI) expressing its reservations on these digital virtual assets.

In a P2P transaction, the exchange, after receiving an order from a buyer, shares the seller’s bank details with the buyer. The buyer then directly transfers the funds to the seller using one of the usual online payment options while the seller moves the cryptocurrency from their wallet with the exchange to the buyer’s crypto wallet.

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The exchange simply connects the buyer and seller, but the money does not flow through the exchange – unlike any modern exchange running a faceless order matching software engine in order execution and trade settlement. transactions.

“That’s not how an exchange should work. It is certainly less efficient. But apparently there is no violation of any regulation or law. It’s a simple transfer of money from A to B via net banking or IMPS or NEFT, and it happens outside the exchange,” an official from one of the exchanges told ET, requesting anonymity.

Alternatively, some of the exchanges have chosen a different mode – receiving funds directly into their checking accounts from crypto buyers. Once the money is paid, the amount is credited to the trader’s account with the exchange, which can then be used to buy cryptos.

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The current account is usually in the name of the company that provides the software solution to the crypto exchange. A leading exchange has such an account with one of the largest private sector banks.

Until recently, exchanges worked differently. The money was received or paid into a nodal account opened by a third-party payment operator who processed payments for transactions taking place on the exchange. However, with payment companies refusing to partner with cryptocurrency exchanges – likely following hints from RBI – the affected exchange was forced to find an alternative payment mechanism. (This is possible because some banks still allow normal checking accounts through crypto exchanges, even though they no longer allow core accounts for payment processing.)

“However, if it is perceived that by accepting funds directly from buyers, an exchange offers some sort of wallet facility to the trader, there would be regulatory issues. If an exchange accepts money to sell crypto, viewing it as a commodity, or acting as an intermediary engaged in fundraising, that’s one thing, but if it receives funds from thousands of traders and holds them until the trades are executed, the question is whether this would be construed as deposits or a wallet facility, and if so, it may require regulatory approval,” a lawyer said.

Additionally, a checking account is used to cover the expenses, like salaries and rent, of an exchange and not to enable transactions taking place on the crypto platform.

Along with the payment hurdle, the crypto community soon has to contend with the 1% withholding tax on each sale proceeds. “According to the law, the buyer must pay the amount. So, in a P2P transaction, a buyer has to deduct the amount before transferring the money to the seller’s account. Under normal circumstances (when there is no restriction on payouts), tax authorities would accept even if exchanges do the job as long as TDS is paid. But what about trading on international stock exchanges? How would TDS be counted? says a chartered accountant.

According to crypto investors, some of the biggest traders have already moved their positions to overseas exchanges – although banks consider moving money overseas to buy cryptocurrencies (as part of of the RBI’s liberalized remittance channel) amounts to a breach of exchange control regulations. “Some use the hawala route to send money. Others use LRS to transfer funds to NRI relatives, who then invest in crypto,” a banker said.

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