One of those founders, however, disputes this version of the deal. Nischal Shetty, now based in Dubai according to media reports, contends that Binance indeed controls WazirX — it owns the domain name and could shut down the platform. The only thing that isn’t under the thumb of the world’s largest crypto exchange is Zanmai, Shetty argues. “Naturally, if Binance desires control of Zanmai, they can acquire shares,” he tweeted. So why doesn’t it, if as Shetty claims, it was interested in doing so as late as February?
CZ, as the Binance CEO is popularly known, won’t be so foolish as to walk into the lair of India’s dreaded Enforcement Directorate to stake a claim on Zanmai. Certainly not after the ED’s Aug. 5 press release that alleges Zanmai owns WazirX — and that the crypto exchange was used to launder money by predatory Chinese loan apps. (In a press release, Zanmai said it co-operates the platform with Binance and is in the position of any other intermediary “whose platform may have been misused.”)
The dodgy apps rented the balance sheets of Indian nonbank lenders and vanished with their illegal profits. “The maximum amount of funds were diverted to WazirX exchange and the crypto assets so purchased have been diverted to unknown foreign wallets,” the directorate said, adding that Zanmai officials “are giving contradictory and ambiguous answers to evade oversight by Indian regulatory agencies.”
What oversight? The Reserve Bank of India, the banking regulator, hates crypto. In 2018, the RBI instructed banks not to entertain customers who dealt in virtual currencies. Exchanges like WazirX, then a fledgling startup, survived the draconian diktat by restricting themselves to facilitating person-to-person transfers. In 2020, the industry heaved a sigh of relief when India’s Supreme Court held the RBI’s ban to be unconstitutional. However, all that has happened since then is that authorities have started taxing crypto trading, without bothering to regulate it.
The “crypto winter” brought on by the collapse of the TerraUSD stablecoin may have convinced the RBI that its dismissive stance was the right one. RBI Governor Shaktikanta Das termed cryptocurrencies as a “clear danger” in Singapore last month. His host nation — a far smaller economy — has also taken a few knocks in this year’s turmoil, most recently with the payment freeze at crypto lender Hodlnaut, which had an in-principle nod to obtain a license under Singapore’s Payments Services Act. The approval has been rescinded, but limited spillover into the local financial system means that the monetary authority doesn’t see crypto as a systemic risk. It’s not something the city-state is going to outlaw.
India could also have said that if people are going to play with hazardous tokens anyway, let’s make sure they don’t hurt themselves or others. By showing scant interest in regulating digital assets, the RBI has left the industry in a bad place. Thanks to a recent Indian Supreme Court ruling, the enforcement directorate has nearly unlimited powers for carrying out arrests and raids, attaching property and recording self-incriminating statements. Bail is near impossible, and the burden of proving innocence is on the accused. A couple more scandals, and the ED may achieve the shutdown the RBI has long wished for: The considerable talent India has in this area will flee to more welcoming jurisdictions like Dubai.
If a comparison with a global financial center like Singapore is not very helpful, maybe India should look to Thailand for inspiration. There, the existing digital regulations are being tweaked to actively create a role for the central bank in safeguarding investors at licensed entities like Zipmex (Thailand) Ltd., a cryptocurrency exchange that briefly suspended coin withdrawals. All that the RBI wants, meanwhile, is a blanket ban on crypto because “it is not possible to regulate something that one cannot define.”
Lame excuses like that have led to the present bizarre situation where nobody is coming forward to claim parentage of India’s largest crypto bourse. That’s just what you get by letting jail risk do the job of adult supervision. The enforcement authority in its press release took WazirX to task for its alleged lack of due diligence: “No physical address verification is done,” it said. “There is no check on the source of funds of their clients.” If this picture of a lawless terrain is true, then a big part of blame goes to the RBI’s dangerous disinterest. Letting the enforcement directorate add its own chilling effect to the crypto winter will make the industry shrivel and die.
More From Bloomberg Opinion:
• Coinbase’s ‘End of Story’ Is Just the Beginning: Lionel Laurent
• Crypto Steps Out of the Shadows in India: Andy Mukherjee
• A Digital Rupee Has Benefits but Why the Rush?: Andy Mukherjee
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.
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