India didn’t make cryptocurrencies illegal last week. But it might as well have. India’s central bank instructed the nation’s banking system to stop processing transactions related to cryptocurrencies — effectively eliminating payments to and from cryptocurrency exchanges. Industry experts say about 5 million Indians own cryptocurrencies. (CNBC)
Be smart: Cutting off the money flow is the go to move for governments who want to end a behavior without criminalizing it. Both the United States and The Netherlands criminalized online gaming transactions without making online gambling illegal. Both countries eventually authorized and regulated online gaming itself.
Underwater assets: Most Indians entered the cryptocurrency market at its peak last year. So India’s decision to cut off the cash flow to cryptocurrencies comes at a terrible moment. Prices for digital currencies have been dropping all year long — and last week’s action by the Indian central bank depressed them even further. Additionally, Indian investors can no longer sell their assets — and have been given no assurances they’ll ever be able to either profit from or mitigate the financial damage.
Related, but not quite as important: It’s not an accident that Pakistan’s central bank announced cryptocurrencies were illegal at the same time India’s central bank announced it was banning banks from processing crypto-related transactions. Though the two nations are rivals, it makes sense for both of them to coordinate on this front. Otherwise, it would be too easy for a thriving black market to take hold.