India is set to ban private cryptocurrencies and allow its central bank to launch an official digital currency under new regulations.
The ban is part of the proposed Cryptocurrency and Regulation of Official Digital Currency Bill which the Indian government will debate during its winter session.
The news has triggered a flurry of sales in the digital currency market, as investors decide to cut their losses before the ban comes into force.
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If passed, the bill essentially bans Indian citizens from transacting in most cryptocurrencies.
The news comes quite soon after China announced it was clamping down on crypto mining in the country in an attempt to quell the environmental impact, by making all digital currency transactions illegal.
Why is the government banning cryptocurrencies?
This proposal hasn't come out of nowhere. Last week, India’s prime minister, Narendra Modi, said cryptocurrencies could “spoil our youth”.
The legislation has been drawn up so that the Indian government can launch its own centralised digital currency through the Reserve Bank of India (RBI).
The ban was first suggested in January through a draft of the current bill. It aims to heavily regulate who owns crypto, while allowing some wriggle room for investors.
The Indian government could also be following the lead of China, which has banned cryptocurrencies and plans to launch its own.
This also makes sense, as the RBI governor Shaktikanta Das argued crypto poses a serious threat to “macroeconomic and financial stability”.
Instead, the bank wants to focus on the blockchain technology that underpins these digital currencies, perhaps so it can dominate the lucrative market.
El Salvador recently announced plans to build a Bitcoin city at the base of a volcano while legalising it as a tender, but this is an outlier. It's expected that more governments will announce similar regulations to India and China.
How could it impact the market?
This move is likely to cause a slump in the market as sales and trading grind to a halt in the country, where an estimated 15 million to 20 million cryptocurrency investors hold around 400 billion rupees.
The news has already caused the dollar-linked stable coin tether to sink 25% to 60 rupees ($0.8061), according to cryptocurrency investor Naimish Sanghvi.
Reuters reported that a second, unnamed, crypto investor suffered a loss of 12,000 rupees as a result of the heavy selling.
The heavy selling has also impacted trading as the exchanges struggle to deal with the influx of demand: WazirX, one of India's largest cryptocurrency exchanges, tweeted to say it was 'investigating reports that users were facing delays on its app and website'.
The issue has since been resolved, but the move has also caused some coins to lose value. Bitcoin, for instance, fell more than 13% on WazirX, while memecoins Shiba Inu and Dogecoin both dropped more than 15%.
It's unlikely that the impact will be felt globally, according to Glen Goodman, author of The Crypto Trader. He told the BBC: "Even when China decided to ban cryptocurrency - and that was a really big deal - it didn't completely massacre the crypto markets.”
So crypto investors still have hope.
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