This is akin to a “demonetization moment” for local crypto exchanges that have pledged to comply with the country’s laws, something authorities have been calling for for a long time. Cryptocurrency assets held on these non-compliant exchanges are subject to transfer to UIF-compliant exchanges. At the forefront of this change are organizations such as Mudrex, registered with the Indian FIU and European Virtual Asset Services Provider (VASP). The influx of crypto assets is likely due to a unified process that allows investors to transfer assets to the Mudrex wallet in less than 15 minutes.
One school of thought suggests that these nine exchanges, not wanting to lose access to Indian markets, may attempt to comply with the FIU requirements once they are notified. However, even if they are respected, the migration of cryptoassets to exchanges that comply with pension fund standards seems inevitable for one simple reason. For any investor with crypto assets or any other financial assets, it is very important to have the assurance that their assets are safe and accessible at all times. It is similar to a person's trust in a bank. A “bank run” occurs when there is suspicion that a bank may be in financial trouble. There are many examples in the recent past, both in India and the United States, where funds were quickly withdrawn from these banks at the first sign of trouble. This shows how confidence in the security and availability of assets encourages investors to take proactive steps, highlighting the importance of compliance and security in the cryptocurrency market.
For disgruntled investors using cryptocurrency exchanges, there is a risk of losing their assets. As a result, they are likely to transfer their assets to local units and entities that meet FIU standards.
Furthermore, the actions of the Financial Intelligence Unit (FIU) represent a significant policy shift, recognizing the futility of attempting to limit or ban cryptoassets at the decision-making level. Instead, it would make more sense to regulate and enforce protections and transparent trading systems for cryptoassets with taxes similar to those applied to other asset classes. This shift was evident at the recent G20 meeting, where the terms “ban” and “slowdown” were replaced by “consensus” and “regulation.” This change was perhaps the first sign of a growing understanding of cryptography by governments around the world.