- Bitcoin and other cryptocurrencies crashed in Indian markets.
- News about an upcoming bill that might ban cryptocurrencies created a FUD that led to the crash.
NEW DELHI (CoinChapter.com) — Bitcoin and other cryptocurrencies were trading at a discount in India after the government listed a cryptocurrency bill for discussion in Parliament.
As news of the proposed bill spread, panic selling sparked a sell-off on exchanges usually used by Indian investors, pulling Bitcoin prices down by almost 15% late night on Nov 23. Other cryptocurrencies, such as Ethereum, Shiba Inu, and Dogecoin, fell more than 20% before recovering.
The panic selling caused problems with exchange servers, with popular exchange WazirX tweeting that customers were facing delays in the app and the web portal. Other trading platforms popular with Indian investors also reported the same issue.
Meanwhile, as prices fell in the Indian markets, the wider USD market remained relatively unaffected. As a result, the difference between the prices of Bitcoin on INR and USD exchanges reached 15%. However, the gap lessened on Nov 24 but was still around 3% at 7:25 AM (UTC).
At 4:30 AM UTC, the BTCINR pair traded at INR 3,818,338 (Around $51,208), while the BTCUSD pair traded at $57,584.59, a difference of roughly 12%. As the day progressed, the INR markets recovered, and at the time of writing, BTCINR was trading at INR 4,292,154 ($57,562), 1.6% above Bitcoin’s USD market rates.
Ethereum, the alpha altcoin, also shared a similar fate. At 4:30 AM, the ETHINR trading pair was priced at INR 278,007 ($3,728), while the ETHUSD pair was trading at $4,334.97. As such, traders would have gotten a discount of 14% on the INR market.
Bitcoin arbitrage opportunities abound
In finance, arbitrage occurs when an investor simultaneously purchases and sells an asset in different markets to profit from differences in the asset’s listed price.
The price difference between the INR and USD exchanges presented an interesting arbitrage opportunity for investors. At 4:30 AM UTC, the difference in USD prices of BTC in USD and INR markets was $6,376, resulting in significant profit in both large and small arbitrage trades.
However, though the prospect of buying Bitcoin and altcoins at a discount in India seems appealing, it isn’t easy to move money between exchanges across national borders. A similar situation happened in April earlier this year. BTC prices at the time were around $58,500.
However, on Korean Exchange Bithumb, BTC was trading at $69,000 when converted from Korean won to USD. So, though the difference in the INR and USD market wasn’t as high, it was still enough to make investors run for the INR market, resulting in BTC prices in the Indian market trading higher.
Investors buying the dip could also be a reason for INR markets catching up. Another reason could be that sources within the government said the proposed law is not a blanket ban on cryptos. Instead, the law plans to treat cryptos as a financial asset.
Not a blanket ban (Maybe)
The legislation aims to safeguard small investors, Bloomberg reported citing unnamed sources. Furthermore, the proposed law may stipulate a minimum amount for investing in cryptocurrencies.
India has no plans to use cryptocurrencies as legal tender, Bloomberg’s sources stated.
However, lawmakers left themselves some breathing space in the bill. The bill’s description proposes to ban all private cryptocurrencies, with some exceptions so that the government can still use crypto’s underlying technology.
The Reserve Bank of India has been lobbying for a complete ban on cryptocurrencies. India’s central bank believes that cryptos would be harmful to the nation’s financial stability. Interestingly, the government is mulling taxing gains from cryptocurrency.
While addressing the Sydney Dialogue, Prime Minister Narendra Modi warned the youth to stay away from cryptocurrencies. He warned that the danger of cryptos is too real, and all nations need to address the problem.
Indian government’s fear of cryptocurrencies stems from the chances of crypto markets becoming avenues for money laundering and terror financing. As such, it is likely that while Bitcoin and altcoins are spared in the proposed law, privacy-centric cryptocurrencies like Monero might get the ax.
Bitcoin was trading at $57,089 at the time of writing, down 1.01% on the day.