Plans by the government for a new bill that would bar most private cryptocurrencies has triggered heavy selling in the country's digital currency markets, as investors look to exit positions despite the losses, said traders and investors.
The government will allow only certain cryptocurrencies to promote the underlying technology and its uses, according to a legislative agenda released late on Tuesday for the winter session of Parliament set to start this month.
The bill, if passed, would effectively ban citizens in India from transacting in most cryptocurrencies.
The dollar-linked stable coin tether (USDT) slumped 25 per cent to nearly Rs 60 ($0.8061) on Wednesday after news of the bill, according to Naimish Sanghvi, a cryptocurrency investor.
A second crypto investor said the value of his portfolio had fallen to about 22,000 rupees from 34,000 rupees on Tuesday as a result of the heavy selling.
"I am contemplating selling because the future is so unclear," said the investor, who asked not to be named as the information is sensitive.
Several exchanges were facing deposit and withdrawal challenges due to the high volume of selling, said cryptocurrency traders.
WazirX, one of India's largest cryptocurrency exchanges, said earlier on its official Twitter account that it was investigating reports that users were facing delays on its app and website. It later said the issue had been resolved.
There are an estimated 15 million to 20 million cryptocurrency investors in India, with total crypto holdings of around 400 billion rupees, according to industry estimates. There is no official data available on cyrptocurrency holdings and the user base.