Bybit Halts Services in India: Understanding the Impact on Crypto Users

Bybit Halts Services in India: Understanding the Impact on Crypto Users

The Indian cryptocurrency landscape is experiencing yet another significant shift as Bybit, a prominent global crypto exchange, has announced a temporary suspension of its services for Indian users, effective January 12, 2025. This move, impacting a substantial user base, highlights the ongoing complexities of navigating regulatory frameworks in the rapidly evolving digital asset space. With India being a major player in the global crypto space, accounting for 11.8% of crypto developers and 5.4% of Web3 creators worldwide, this development raises crucial questions about the future of crypto trading in the country.

Why the Halt? Regulatory Scrutiny and Compliance

Bybit's decision to halt services in India stems from "recent developments from Indian regulators" and a continuation of "previously implemented restrictions." The core issue revolves around Bybit's registration as a Virtual Digital Asset (VDA) service provider with India's Financial Intelligence Unit (FIU). The FIU oversees trade in VDAs and ensures compliance with the Prevention of Money Laundering Act (PMLA) and the VDA taxation framework. Under current laws, all crypto platforms must register as reporting entities to offer crypto trading services in India. Bybit has stated that this is a temporary measure while they finalize their registration, which they expect to complete in the coming weeks.

This situation is not unique to Bybit. In 2023, the finance ministry issued notices to nine overseas crypto platforms for not registering as reporting entities or complying with PMLA provisions. This led to their websites being blocked in India. Even Binance, a major global exchange, faced similar issues, eventually paying a fine and agreeing to comply with regulations to resume operations.

Impact on Indian Crypto Users

The immediate impact of Bybit's service halt is significant for Indian users. Starting January 12, 2025, at 8 AM UTC, Indian users will be unable to:

• Open new trades: This includes all trading products, both crypto and fiat.
• Access trading products: Users will not be able to access any of Bybit's trading products.
• Make deposits: Both crypto and fiat deposits are temporarily restricted.
• Participate in campaigns: Users will not be able to complete new or ongoing tasks for any campaigns.
• Use Bybit Cards: All transactions using Bybit cards will be restricted.

Existing derivatives positions will be set to "close-only" mode, meaning users can only close their positions but cannot add to or modify them. Furthermore, all master-follower relationships in copy trading and trading bots will be terminated by January 13, 2025, and all INR-related P2P ads will be removed by January 12.

The only exception is withdrawals, which will remain available for users to access their funds. This is a crucial measure to ensure users retain control over their assets during this period.

The Broader Indian Crypto Market

India's crypto market is characterized by a complex interplay of high adoption rates and stringent regulatory measures. Despite a challenging tax regime, India has consistently ranked high in global crypto adoption. A survey conducted in June 2023 revealed that approximately 20% of the Indian population owns cryptocurrency. This is driven by factors such as a desire for financial inclusion, distrust in traditional banking systems, and the hope for long-term returns.

However, the Indian government maintains a cautious stance on cryptocurrencies due to their volatile nature and potential for misuse in illicit activities. While cryptocurrencies are legal to trade and hold, they are not recognized as legal tender. The government has imposed a 30% tax on gains from crypto transfers and a 1% Tax Deducted at Source (TDS) on transactions exceeding ₹50,000 annually.

Trading Volume and User Migration

The Indian crypto market has seen fluctuations in trading volumes. In February 2024, Indian exchanges saw their highest trading volumes since June 2023, driven by improved global market sentiment. However, these volumes are still significantly below their historic peaks in 2021. The imposition of a 30% tax on cryptocurrency trading has been a major factor in dampening trading volumes on Indian exchanges.

The suspension of Bybit's services could lead to a shift in trading volume to other exchanges, both domestic and international. Indian exchanges like Bitbns, WazirX, and CoinDCX have seen increased trading volumes in recent months. With Bybit's temporary exit, these exchanges may see a further influx of users. However, some Indian users may also migrate to other international exchanges that are still operating in the country, despite the regulatory risks.

Alternatives for Bybit Users

For Indian users affected by the Bybit service halt, several alternative crypto exchanges are available. Some of the top Indian exchanges include:

• CoinDCX: Known for its low fees and wide range of cryptocurrencies.
• WazirX: A popular exchange with a user-friendly interface, suitable for beginners.
• Bitbns: Offers a diverse range of cryptocurrencies and investment options.
• ZebPay: Prioritizes security and is a good option for security-conscious investors.
• CoinSwitch: A good option for INR deposits.

Other international exchanges, such as Binance and KuCoin, also offer services to Indian users, though they may also face regulatory scrutiny in the future.

The Future of Crypto in India

The current situation with Bybit highlights the ongoing tension between the rapid growth of the crypto market and the need for regulatory clarity. India is expected to set up a Digital Asset Regulatory Authority (DARA) by the end of 2025 or early 2026. This move is aimed at creating a more comprehensive regulatory framework for the crypto space, addressing key areas like taxation and anti-money laundering compliance.

The future of crypto in India is likely to shift from speculative trading to practical utility, with an increasing emphasis on real-world applications for digital assets. As the regulatory landscape evolves, it is crucial for crypto exchanges to prioritize compliance and work closely with regulators to ensure the long-term sustainability of the market.

The temporary halt of Bybit's services in India serves as a reminder of the dynamic nature of the crypto industry and the importance of staying informed about regulatory developments. While this may cause temporary inconvenience for users, it also presents an opportunity for the market to mature and for a more robust regulatory framework to be established.