The likelihood of the government banning private cryptocurrencies has led to a crash in their prices, according to data available with Indian exchanges.
The Winter Session of Parliament is scheduled to start on November 29. Among the 26 bills on the agenda, released on November 23, is 'The Cryptocurrency and Regulation of Digital Currency Bill, 2021', which seeks to ban private cryptocurrencies in India with exceptions to harness the underlying technology powering cryptocurrencies, while regulating the official digital currency to be issued by Reserve Bank of India. The exact nomenclature used in the brief intent of the bill can be seen below, with very little change when it was also on the agenda to be introduced in this year's Budget Session.
To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses
As a response, the rupee price of bitcoin - considered to be a benchmark cryptocurrency - was trading 12.37% lower on a rolling 24-hour period at near ₹40.8 lakh for one bitcoin on cryptocurrency exchange CoinCDX. Over a rolling 24-hour period, the prices recovered since the rupee price of bitcoin touched a low of ₹32.56 lakhs for one coin. Such a drop is indicative of panic selling, as the bill is yet to spell out the modalities of what will happen to existing holders of cryptocurrencies, which is unregulated unlike more mainstream assets or commodities.
However, the prices of bitcoin (and other cryptocurrencies) quoted in other fiat currencies did not show any volatility. The price of bitcoin in terms of tether (USDT) is at 56,732; and has fallen only 1.51% over the same 24-hour rolling period. Tether, and coins like USDC and BUSD are called 'realcoins' or 'stablecoins', since their values are pegged to fiat currencies - in this case the US dollar and have a guaranteed exchange rate - exact one dollar for one of these coins. Therefore, cryptocurrencies being quoted in terms of them reflect what they would cost in actual US dollars.
India's move to ban cryptocurrencies reflects that of China, whose regulators also conducted crackdowns. In contrast, El Salvador, a country in Central America has made bitcoin legal tender and intends on building an entire city, to provide a fillip to bitcoin and cryptocurrencies.
Also Read: Explained: El Salvador's Zero Emission, Zero Tax 'Bitcoin City'
Seeing selling in the Indian rupee market, cryptocurrency exchanges were forced to clarify on social media that prices of cryptocurrencies differ across currency markets and also requested their customers not to resort to panic selling.
What should you know about cryptocurrencies and how are they different from traditional assets? Here is a thread by Monika Halan, a certified financial planner.