India will come up with a bill to ban cryptocurrencies and fine anyone in the country who trades or holds such digital assets, a government official said.
The move is a potential blow to millions of investors piling into the red-hot asset class.
The bill, one of the world’s strictest, will make it a crime to possess, issue, mine, trade or transfer crypto-assets.
The measure is in line with a January government agenda that called for a law to ban private digital currencies such as Bitcoin while allowing authorities to build a framework for an official digital currency.
However, recent government comments had raised investors’ hopes that New Delhi might go easier on the booming market.
Instead, the bill will give holders of cryptocurrencies up to six months to liquidate them, after which penalties will be levied, said the official.
Politicians are confident that the bill will be passed as Prime Minister Narendra Modi’s government holds a comfortable majority in parliament.
If it becomes law, India would be the first big economy to make cryptocurrency possession illegal. Even China, which has banned mining and trading, does not penalise possession.
India’s finance ministry did not immediately respond to a request for it to comment.
Bitcoin, the world's biggest cryptocurrency, hit a record high $60,000 on Saturday. Its value has almost doubled this year as its acceptance as a valid payment medium has increased, with support from such high-profile backers as Tesla chief executive Elon Musk.
In India, despite government threats of a ban, transaction volumes are rising and 8 million investors now hold 100 billion rupees ($1.4bn) in crypto investments, according to industry estimates. No official data is available.
“The money is multiplying rapidly every month and you do not want to be sitting on the sidelines,” said Sumnesh Salodkar, a crypto investor.
“Even though people are panicking due to the potential ban, greed is driving these choices.”
User registrations and money inflows at local crypto exchange Bitbns are up 30-fold from a year ago, said Gaurav Dahake, its chief executive. Unocoin, one of India’s oldest exchanges, added 20,000 users in January and February.
ZebPay “did as much volume per day in February 2021 as we did in all of February 2020”, said Vikram Rangala, the exchange’s chief marketing officer.
Top Indian officials have called the cryptocurrency trend a Ponzi scheme, but finance minister Nirmala Sitharaman this month eased some investor concerns.
Bitcoin, the world’s biggest cryptocurrency, hit a record high of $60,000 on Saturday.
“I can only give you this clue that we are not closing our minds; we are looking at ways in which experiments can happen in the digital world and cryptocurrency,” she told CNBC-TV18. “There will be a very calibrated position taken.”
However, the senior official said the plan is to ban private crypto-assets while promoting blockchain – a secure database technology that is the backbone for digital currencies but also a system that experts say could revolutionise international transactions.
“We do not have a problem with technology. There is no harm in harnessing the technology,” said the official.
The government’s moves will be “calibrated” regarding penalties on those who fail to liquidate within the grace period.
A government panel in 2019 recommended jail sentences of up to 10 years for people who mine, generate, hold, sell, transfer, dispose of, issue or deal in cryptocurrencies.
Last March, India’s Supreme Court struck down a 2018 order by the central bank forbidding banks from dealing in cryptocurrencies. The court ordered the government to take a position and draft a law on the matter.
The Reserve Bank of India voiced its concern again last month, citing what it said were risks to financial stability from cryptocurrencies. At the same time, it has been working on its own digital currency, a step the government’s bill will also encourage, said the official.
Despite the market euphoria, investors are aware that the boom could be in danger.
“If the ban is official, we have to comply,” said Naimish Sanghvi, who started betting on digital currencies in the past year, referring to existing concerns about a potential ban.
“Until then, I would rather stack up and run with the market than panic and sell.”