It was announced this week that India will attempt to impose some of the world’s strictest rules on cryptocurrencies, prohibiting citizens from owning, trading, transferring or mining assets such as bitcoin and altcoins. The move comes as cryptocurrency technology piques the interest of the financial world, Bitcoin grows significantly, and India plans to introduce its own digital currency framework.
But could this be the beginning of a domino-like effect in which other weaker governments and economies are trying – due to their numerical strength – to follow suit and also to ban cryptocurrencies? Because of this, it is unlikely to happen, and even if it does, it will have very little impact on asset class growth.
India proposes banning Bitcoin from illegally owning, trading and mining crypto
According to officials with “direct knowledge of the plan,” India is about to launch a bill proposing a comprehensive ban on the digital asset class, including bitcoin and altcoins such as Ethereum and others. The ban covers owning assets as well as conducting activities related to cryptocurrencies, including mining, trading, investing and more.
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The same officials familiar with the matter claim they are confident that the bill will find sufficient support through parliament under the majority control of Prime Minister Narendra Modi. The bill would give citizens six months to liquidate assets, which in theory could affect the price increase during this phase when the offer hits the market.
The news was enough to cause a 10% correction in Bitcoin price, which hit a new record high over the weekend. However, there could be a domino effect if other governments join India in banning cryptocurrencies, either out of interest in introducing their digital currencies or even out of fear of further growth in the sector.
Bitcoin has corrected more than 10% from highs since the news broke | Source: BTCUSD on TradingView.com
Domino effect or equal to the incoming king?
One of the reasons for the new bill is that India is building its own framework for a national digital currency. India is essentially crowding out the competition so that its currency can dominate when the time for its debut comes.
Other nations are right behind them in building their own technology and could see the ongoing Bitcoin revolution as a threat as well. In such a future, a sustained sale may or may not take the momentum from this bull market due to the fact that investors are forced to liquidate stocks worldwide, stock-to-flow model.
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However, such a future is highly unlikely. The reason for the growth of Bitcoin and other cryptocurrencies is not just digital scarcity. Bitcoin is also censorship resistant, which means that while a government can prohibit someone from owning or using it, it cannot actually be confiscated by a user unless it is kept in a wallet by a third party who is trading could be on behalf of the government.
When properly stored on the blockchain, India cannot take its citizens’ BTC. Savvy users will find ways to bypass the law.
Bitcoin was down (-7%) as India takes steps to ban it. This is typical of weaker governments who see their lack of monetary control as threatening their very existence. Can’t blame them. But it won’t work …
– Ross Gerber (@GerberKawasaki) March 15, 2021
India could also face the fact that it has made a grave mistake by the time Bitcoin finally comes into full vogue, possibly as the next global reserve currency. All they have done is water down their citizens from the rest of the world and age the country.
So while a domino effect could occur, governments following India’s example here could topple one by one.
Featured image from deposit photos, charts from TradingView.com