Local prices of cryptocurrencies fell sharply overnight as selling accelerated after the government listed a bill to deal with such tokens for the upcoming session of Parliament. Prices have recovered in the first couple of hours of local trade.
“The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” listed for the winter session, is described as legislation that “seeks to prohibit all private cryptocurrencies in India”. The bill also intends to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.
Contents of the bill are not in public domain so its actual provisions are unknown.
Fear of a ban, however, prompted selling across local exchanges, leading to sharper fall in prices in rupee terms compared to overseas markets.
On WazirX, one of India’s larger exchanges, Bitcoin is now down 10% over the last 24 hours. According to CoinDesk, a news site which also collates price information, the token is down just about 0.5%.
Ethereum is down 7.5% on local exchanges, while it is up more than 2% overseas.
Recently popularised meme coins, too, sold off overnight but have recovered since.
Still, Shiba Inu is down nearly 17% locally and 7% overseas. Dogecoin is down 10% in India but marginally higher overseas.
Prices taken are as of 10.45 a.m. Local prices are based on quotes on WazirX, while overseas prices are based on CoinDesk data. Cryptocurrencies trade through the day unlike other asset markets which have defined timings.
Overall, across a basket of tokens, local prices saw about a 15% drop overnight compared to international markets, the head of a local exchange said on the condition of anonymity. Many people panic-sold based on the news of the bill and confusion around what it means, this person said. The selling is likely coming from those who have invested in recent months, while investors who have seen this confusion before may wait for clarity, this person said.
A representative of another exchange, who also spoke on the condition of anonymity, said the accelerated selling in India is visible in the dislocation in prices. When demand is high, Bitcoin prices trade at a premium to the offshore value when converted from dollars to rupee. On days like today, when there are more sellers, you see it at a discount.
Prices, however, have recovered in early trading on Wednesday and the panic has subsided, the second person said.
“I urge all crypto asset investors in the country to remain calm, do their own research before arriving at a rushed conclusion. Investors should wait for a government statement on this matter and not rely on secondary sources of information,” said Ashish Singhal, founder and chief executive of CoinSwitch Kuber.
Trading volumes surged too.
India has seen a surge in interest in cryptocurrencies over the past year or so, with a number of young investors investing in these tokens. The industry estimates that it has nearly 1.5 crore accounts. However, RBI Governor Shaktikanta Das recently challenged those estimates saying that many of these accounts hold very little money and may not be active investors.
India has continued to dither on its stance on cryptocurrencies for years. The RBI’s 2018 circular to prevent regulated entities from having any dealings related to cryptocurrencies was struck down by the Supreme Court in 2020. Since then, the central bank has cautioned against the risks of cryptocurrencies. The government, however, has been reviewing an earlier cryptocurrency bill which had intended to ban these tokens. As part of the review, consultations have been held with the industry. Following those consultations, Bloomberg reported that the government intends to come out with “forward looking” policies.
“There have been many positive steps taken by the government to learn and understand crypto and its impact on all stakeholders — investors, exchanges, policymakers,” said Avinash Shekhar, co-chief executive at ZebPay. “So, we’re looking forward to a crypto bill that takes into consideration all the inputs from those discussions.”