Cryptocurrency exchange Koinex announced that it has decided to shut down all digital assets exchange services and operations today, “after months of uncertainty and disruption”. Rahul Raj, its co-founder and CEO, wrote in a blog post: “The digital assets trading services will be permanently disabled on all our platforms at 2.00 PM IST on Thursday, June 27, 2019. All open orders after this deadline will be automatically cancelled and the funds will be returned to corresponding wallets. Users are requested to plan their trading activity carefully and close their trade positions. A snapshot of the wallet balances at this time will be taken for record, and the effort to disburse INR balances will begin immediately.” Digital assets wallets would continue to be functional, and users would be required to withdraw all funds from the platform before 9 pm on July 15, he added. Failing to do so could result in forfeiture of their funds if Koinex was unable to keep the wallet function alive after the July 15 deadline.

Raj wrote that since the bank accounts with users’ funds are still frozen, “we have made arrangements for funds from our own resources, so that we return as much as we possibly can, back to our users”. Over the next 5 weeks, he wrote, Koinex will attempt to release all user deposits to their bank accounts after levying a convenience fee (between Rs 10 and Rs 2,000, depending on the INR wallet balance). He said the company was doing this voluntarily, and had no legal obligation to do so.

Why Koinex shut down

Raj said that in December 2017, Koinex recorded $265 million in trading volume and added more than 40,000 new users in 24 hours at its peak. But on April 6, 2018, the RBI issued a circular instructing all regulated entities to exit relationships with companies and individuals dealing in virtual currencies, and block all crypto-related transactions. While Koinex has challenged the circular in the Supreme Court, the status quo continues, Raj said. He added that multiple delays by government agencies in clarifying the regulatory framework for cryptocurrencies, combined with regular disruption in Koinex’s operations led to the decision.

He wrote the company has consistently been facing service denials from payment gateways, bank account closures and blocking of digital-asset transactions. “Even for non-crypto transactions like payment of salary, rent and purchase of equipment, our team members, service providers and vendors have had to answer questions from their respective banks — just because of an association with a digital assets exchange operator,” he wrote.

Raj also referenced a recent report about a proposed piece of legislation called the ‘Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019’, which suggested that trading in cryptocurrencies could be punished with up to 10 years in jail. He said the report created enough fear and uncertainty to cause a sharp decline in trading volumes and instilled a “clear discomfort among law-abiding citizens”. He also said the business was no longer economically feasible: “The infrastructure cost alone for operating the exchange platform and ensuring the security of users’ funds is unbelievably high.” The draft legislation was first reported in April, at which time it was said to be under discussion. The draft was to be released at the end of May, but there’s no sign of it yet.

RBI’s ban was not backed by independent research or public consultation

Last June, a RTI  response revealed that the RBI’s order on cryptocurrencies was not backed by public consultation or independent research. In a response to the RTI application filed by startup consultant Varun Sethi on April 9, the central bank said it did not have an internal committee for virtual currencies. “The RBI specifically mentions that it conducted no research or consultation before the implementation of the restriction in April. The RBI also responded that no committee was ever formed for analysing the concept of blockchain before the decision,” Sethi said at the time.

Four crypto-exchanges have now shut shop in India

  • Last October, Zebpay shut down its cryptocurrency exchange, saying that it was unable to find a “reasonable way” to conduct its business. It said in a blog post that the RBI’s ban prevented the company and its customers from “transacting business meaningfully”.
  • In March, Coindelta said it would no longer be able to provide exchange services for cryptocurrencies, also blaming the RBI’s directive and the lack of progress in the Supreme Court case.
  • Two months later after this, Coinome announced that it would shut down on May 15.