Binance has recently terminated the option for cash payments in peer-to-peer (P2P) cryptocurrency trades in India, a move intended to enhance compliance with regulatory standards and improve its legitimacy in the Indian market.

Binance’s Sudden Termination of Cash Payments

Previously, Indian traders could settle their P2P cryptocurrency transactions using physical cash or by depositing cash into a bank account. This flexibility was especially beneficial for circumventing the high taxes imposed on crypto trades in India. However, Binance has now restricted P2P transactions to non-cash payment methods such as online fund transfers and Unified Payments Interface (UPI) payments.

The decision to eliminate cash payments marks a significant shift in Binance’s approach to the Indian market. The exchange aims to align better with regulatory expectations and enhance its compliance measures amid increasing scrutiny from Indian authorities.

Reasons Behind the Decision

Compliance and Legitimacy: By halting cash payments, Binance is taking steps to align more closely with regulatory standards. This move is part of a broader strategy to gain legitimacy in the Indian market, which has faced heightened regulatory oversight.

Risk Mitigation: Cash transactions in P2P trades pose significant physical and financial risks. Incidents of traders being assaulted and forced to transfer their virtual assets or hand over cash during physical meetings have been reported. Regulatory uncertainty about the legality of large cash transactions further complicates the situation. By eliminating cash payments, Binance aims to mitigate these risks and enhance user safety.

Binance’s Continued Operations in Other Regions

Interestingly, Binance continues to allow cash payments for P2P trades in other regions, such as the United Arab Emirates (UAE). In Dubai, for instance, the interchangeability of cash and cryptocurrencies is more fluid, and the city is establishing itself as a significant cryptocurrency hub.

Binance's Regulatory Challenges and Market Re-entry

Despite the challenges, Binance has been working towards re-entering the Indian market after being banned in late 2023. The Financial Intelligence Unit of India (FIU-IND) recently announced that Binance and KuCoin had successfully registered with the regulatory body, signaling a significant credibility shift for the cryptocurrency industry in India.

This move follows a prior ban on several offshore entities, including Binance, which negatively impacted the local crypto industry and shifted trading volumes to international exchanges. With KuCoin resuming operations after paying a penalty and Binance expected to settle a fine, other sanctioned platforms are negotiating their return, while some, like OKX and Bitstamp, plan to exit the Indian market.

Before its ban, Binance dominated the Indian crypto market, holding nearly 90% of the estimated $4 billion in cryptocurrency holdings among Indian citizens. This dominance was largely due to its non-adherence to Indian tax regulations, particularly the 1% tax deducted at source (TDS) on transactions.

Conclusion

Binance's decision to terminate cash payments for P2P cryptocurrency trades in India reflects its efforts to enhance compliance and improve its standing in the regulatory landscape. This move aims to mitigate risks associated with cash transactions and align better with regulatory expectations. As Binance navigates these challenges, it continues to explore ways to re-establish its presence in the Indian market while maintaining operations in other regions where regulatory environments are more favorable.