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Panic grips Indian crypto-exchanges after government proposes a ban

Over the last few days, crypto-currency investors in India have pulled at least ₹1,000 crore from their accounts after the government said that it would introduce a new piece of legislation banning private crypto-currency activity in the country. Three founders of Indian crypto-exchanges told MediaNama that overnight there has been panic selling by Indian investors in Bitcoins and other cryptos after the news broke of another crypto ban proposal.

As part of the Budget session of Parliament for 2021, the government will introduce a bill which will ban trading and investments in crypto-currencies. At the same time, the bill provide the Reserve Bank of India (RBI) with the necessary legal powers to develop a central bank-backed digital currency (CBDC) or digital Rupee. The decision to introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 comes a week after the RBI said it had begun exploring the possibility of issuing and developing a digital currency or digital Rupee.

“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,” — Lok Sabha Bulletin Part II.

According to data from domestic crypto-exchange WazirX, Bitcoin was trading at a high of over ₹28.5 lakh on Friday and dropped to ₹21.6 lakh as of February 1 morning. Prices recovered during the day to a little over ₹24 lakh as of mid-day on Monday on WazirX, perhaps since Finance Minister Nirmala Sitharaman did not elaborate on the government’s crypto-regulation strategy during her budget speech for 2021-22.

According to Sumit Gupta, co-founder and chief executive officer, CoinDCX, crypto-currencies have performed significantly well especially in 2020 including Bitcoin that has performed 200% year to date. “This time around, we witnessed not only from retail but institutional investors globally. Microstrategy has included Bitcoin in their company’s treasuries. Many payment rails like PayPal, Square are integrating cryptocurrencies in their services due to rising demand for cryptocurrencies from retail investors. However in India, we are yet to see the same level of participation from institutional investors. The space is dominated majorly by retail investors,” he said.

“Recent media reports suggest that Indian government plans to introduce its own digital currency and may consider banning private cryptocurrencies from operating in Indian market. This has led to speculations that Indian users may be considering bailing out and maybe resorting to offloading their investments in crypto. As one of the key players operating in the Indian crypto market, we have not observed such panic selling by our users as of yet. We believe the earlier ban and the respite from the Supreme Court thereafter has kept the sentiments within the community at a ‘wait and watch’ mode,” Gupta said in an email response to MediaNama’s queries.

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Crypto-ban proposal leads to panic

A founder of a crypto-exchange in India said that at least 15% of their clients closed their existing positions and pulled money out of the exchange. “Indian crypto-market is taking a beating today, as investors are panicking. As an exchange we cannot tell them how to invest, but only assure them that it is safer to be invested than to sell their positions during a panic sale,” this person said on the condition of anonymity.

According to Nischal Shetty, co-founder and chief executive officer, WazirX, a lot of regular retail investors are selling their holdings because they are afraid of what will happen with the Bill. “Before there was a premium of 5–6% on Bitcoins because India had more buyers than sellers, now there are more sellers than buyers so there is a discount on Bitcoins by around 8–10% compared to international prices,” he said.

Arjun Vijay, co-founder and chief operating officer Giottus, says that they are telling their clients to not panic and sell. “People are panic selling, expecting the government to announce something during the budget session. Close to ₹500 to ₹1,000 crore has been withdrawn since Friday. In all likelihood the government will give some time for moratorium,” he said.

When asked if this panic sale could lead to liquidity issues for domestic crypto-exchanges, Vijay said that since crypto-trades are on a one-on-one basis, so as long as there is a buyer there would not be a liquidity issue. “There is no liquidity issue here since there is no margin, we have a liquidity cover of 110%,” he said.

“Account closures aren’t happening as people right now are just selling their positions. If investors bought crypto-currencies in the last few weeks, they will lose money today, but if they bought a few months ago or before, they are losing on what they could have got. Even if the Bill comes, it is a long process before it becomes a law as we expect the Bill to go to a standing committee. So it is better that investors do not panic,” said Shetty.

Evolving crypto-regulations in India

In the beginning, there was no regulation. Then in April 2018, the RBI issued circular barring banks from working with crypto-firms in India. This directive acted as a wrecking ball for the industry, with many crypto-firms and exchanges moving abroad or shutting down. However, after the Supreme Court’s verdict in March last year, which quashed the circular, crypto-exchanges in India witnessed a massive inflow of new investors and customers. They were able to partner with banks and payment companies, as there was no restriction. Between March and December 2020, trading volumes across the top 4 Indian crypto-exchanges grew by 500%.

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While details of the new bill are yet to be published, in 2019 a Finance Ministry committee on virtual currencies prepared a draft bill that sought to ban crypto-currency issuance, trading , investment and other activities in the country, punishable with a fine of up to 25 crore or with an imprisonment term of one to ten years, or both. But this legislation was never approved by Parliament.

Also read


**Update (February 1, 2021 at 5:55 pm). Updated with statement from Sumit Gupta, co-founder and chief executive officer, CoinDCX. Originally Published on February 1, 2021 at 2:31 pm.

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Reports on banking, payments, fintech and crypto-curencies. Additional reporting on media regulations, data protection and other areas.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.



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