Major breaking news! India will ban cryptocurrencies, with a maximum sentence of 10 years? Bitcoin plunges by $2,000 in an instant, is the world's most powerful asset going to be in trouble?

Source: China Securities

Author: Shi Qian

Even more cruel than the United States!

Just now, Reuters reported that Indian government officials said that India intends to legislate to ban cryptocurrencies and punish trading and even holding cryptocurrencies. The new law will give cryptocurrency holders six months to liquidate such assets.

According to the Times of India on March 15, Finance Minister Nirmala Sitharaman said in an interview that the so-called proposed cryptocurrency ban does not mean closing all cryptocurrency windows. She said: "Both the Supreme Court and I have made relevant comments, and the central bank may call for the launch of a central bank digital currency, but we are very clear that we are not going to close all cryptocurrency options." She said that the authorities will allow people to use certain windows to experiment with blockchain, Bitcoin or other cryptocurrencies. At the same time, the cabinet meeting has discussed cryptocurrencies and related plans will be launched soon.

It is reported that India currently has about $1.4 billion in cryptocurrency investment, and the number of registrations and transaction funds have increased nearly 30 times in the past year. The government proposed in 2019 that anyone who mines, generates, holds, sells, transfers, disposes of, issues or trades cryptocurrencies should be sentenced to up to 10 years in prison.

After the above news was released, Bitcoin, which had been soaring above $60,000 over the weekend, quickly plunged, falling more than 3% and more than $2,000. So, is this world's most powerful asset going to be in trouble? In fact, the United States just launched an investigation into the cryptocurrency exchange Binance last Friday, and India recently participated in the "2+2 talks" led by the United States. India's immediate action after that is also meaningful.

India takes action

According to Reuters, a senior Indian government official said that India will propose a law to ban cryptocurrencies. Punish trading and even holding cryptocurrencies. The new law will give cryptocurrency holders six months to liquidate such assets.

The official, who has direct knowledge of the plan, said the bill is one of the world’s strictest policies against cryptocurrencies and would make it a crime to own, issue, mine, trade and transfer crypto assets.

The measure is in line with a January government agenda that called for a ban on private virtual currencies such as Bitcoin while creating a framework for an official digital currency. Officials are confident the bill will be passed as Prime Minister Narendra Modi's government has a majority in parliament. If the ban becomes law, India would become the first major economy to make holding cryptocurrencies illegal.

Bitcoin, the world's largest cryptocurrency, hit a record high of $60,000 on Saturday and has nearly doubled this year as its acceptance as payments grows with support from high-profile backers such as Tesla CEO Elon Musk.

Senior Indian officials have called cryptocurrencies a "Ponzi scheme," but this month Finance Minister Nirmala Sitharaman eased some investor concerns. "I can only give you a clue that we are not shutting down, we are looking for ways to experiment in the digital world and cryptocurrencies," she said.

India may be aiming to ban private crypto assets while promoting blockchain, the secure database technology that underlies virtual currencies and a system that experts say could revolutionize international transactions.

An Indian government task force in 2019 recommended a prison sentence of up to 10 years for anyone who mines, generates, holds, sells, transfers, disposes of, issues or trades cryptocurrencies. The official declined to say whether the new bill would include jail terms and fines, or to provide further details, but said discussions were still in the final stages.

In March 2020, the Supreme Court of India struck down a 2018 order by the central bank that banned banks from dealing in cryptocurrencies. This led to a massive influx of investors into the market. The court ordered the government to take steps on the matter and draft a law.

The Reserve Bank of India reiterated its concerns last month, saying cryptocurrencies pose risks to financial stability. The central bank has been working to launch its own digital currency, and the government's bill would also encourage that move.

Bitcoin plunges rapidly, is it still possible to play?

After the above news was released, Bitcoin quickly plunged by more than 3%, but then the decline narrowed.

According to industry estimates, 8 million investors now hold 100 billion rupees ($1.4 billion) in cryptocurrency investments as trading volumes increase despite the Indian government's threat of a ban. "The money is increasing rapidly every month and you don't want to sit on the sidelines," said Sumnesh Salodkar, a cryptocurrency investor. "While people may be panicking over the ban, greed is driving these choices."

Gaurav Dahake, a veteran exchange management expert, said user registrations and fund inflows at local cryptocurrency exchange Bitbns have increased 30 times from a year ago. Unocoin, one of India’s oldest exchanges, added 20,000 users in January and February despite concerns about the ban.

Despite the euphoria, investors are aware that the boom could be in danger. "If the ban is official, we will have to comply," Naimish Sanghvi, who began betting on digital currencies last year, told Reuters, expressing concern about a potential ban. "Until then, I would rather fight the market than panic and sell."

It is worth noting that on March 13, Beijing time, the market suddenly revealed that the U.S. Commodity Futures Trading Commission (CFTC) was investigating the cryptocurrency exchange Binance because the company allowed Americans to bet in violation of U.S. rules. The CFTC is investigating whether the company allows U.S. residents to trade derivatives it regulates. The company is not registered with the CFTC. But Binance has not been accused of misconduct, and the investigation may not lead to any enforcement action.

Coincidentally, the Quadrilateral Security Dialogue (Quad) consisting of the United States, Japan, India and Australia held its first online leaders' summit last week. The content of the talks is currently unknown, but considering this sensitive time and India's actions, India's move may not be accidental. The United States may have realized the impact of digital currencies, especially Bitcoin, on the US dollar, so it took law enforcement actions last week, and India's move is more likely to be a test of the water. With Russia's participation in Bitcoin transactions, the pressure on the US dollar may be greater, so the subsequent actions against Bitcoin should also be greater.