Digital currencies slump in India as bill to ban private cryptos spooks markets

The government on Tuesday confirmed that it will introduce “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021″ during the winter session of Parliament beginning 29 November.

The bill seeks to prohibit all private cryptocurrencies in India, but will allow certain exceptions to promote the underlying technology of cryptocurrency and its uses, the government said in a notification on Lok Sabha website. The bill also aims “to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India”.

The government had listed the same bill for the Budget session in February, but it never came up for discussion in Parliament.

Despite this, crypto prices saw major crash on Indian exchanges even as major assets such as bitcoin and ethereum were trading stable on global exchanges.

The prices of the world’s biggest crypto asset, bitcoin, crashed to as low of ₹33,50,000 on WazirX from the high of ₹46,35,371 after the news about the bill broke. The coin was trading at around ₹37,80,000 on Tuesday morning in India compared with $56,638.67 or ₹42,15,928 in global markets, as per Coingecko, a digital currency price and information data platform.

Even, tether, which is a stable-coin pegged 1:1 to the US dollar, was trading at a discount of up to 25% in India. Other prominent coins such as ether, Shiba Inu and dogecoin were also up to 20% in the red.

“The panic stems from two lines of text in the description of the bill. If the bill indeed bans cryptocurrencies, it would be justified. But I don’t think it will do so, and panicking now would be a big mistake,” said Ajeet Khurana, founder of Genezis Network, a think tank for crypto startup investment.

Additionally, due to the frantic selling, investors on some exchanges faced issues such as delays in accessing multiple functions, trading as well withdrawals.

The government and industry experts recently held talks on how to move forward on cryptocurrency in India. The Centre is reportedly considering regulating crypto as a commodity than a currency.

Recently, the Reserve Bank of India (RBI) governor Shaktikanta Das sounded alarm on cryptocurrencies, warning very serious risk it poses for macro economy and financial stability of the country.

According to experts, retail investors were majorly behind the panic selling on Indian exchanges.

“People were panic buying meme-coins such as Shiba Inu or Dogecoin a few days back. Now with the listing of bill, the investors are panic selling. The prices are now expected to consolidate and stay at a discount in the short-term,” said Hitesh Malviya, founder, itsblockchain.com, a blockchain and cryptocurrency publication.

Amid panic selling, crypto exchanges were hopeful of positive regulations in India and urged investors to remain calm, and avoid arriving at a rushed conclusion.

“The industry has been actively communicating with all stakeholders keeping investor protection at the forefront. Our discussions over the last few weeks indicate there is broad agreement on ensuring customers are protected, financial system stability is reinforced and India is able to take advantage of the crypto technology revolution,” said Ashish Singhal, Founder and CEO, CoinSwitch Kuber in a statement.