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Effect of Demonetization on Bitcoins in India

Demonetization

Demonetization was declared on 8th Nov. 2016. All 500 and 1000 denomination currency notes stopped being legal tenders. This accounted for 86% of the total economy. Since then Indian Financial and Banking sector has been experiencing high turbulence. Cash crunch everywhere including banks and ATMs followed by long queues, every Indian is in grip of financial concern. Its not whether they have black money or not, they are concerned for the liquidity, hard Cash in their pockets! Of course those who depend more on plastic money are still happier.

Demonetization and Bitcoin

With all this turbulence happening in the country, one thing that raised eyebrows of the people in Bitcoin Community, was the price of Bitcoins in Indian market. There are four major Bitcoin exchanges in India, Unocoin, Zebpay, BTCXIndia & Coinsecure. Their average price was almost 34% higher than average global Bitcoin price. See chart below of Unocoin prices in last one month :

demonetization
Source : unocoin.com/charts

 

As can be seen, on 25th nov price was Rs 70,573 which is equivalent to approx $1040. International prices touched max of $ 777 few days back which was like highest in last three years.

Effect of Demonetization on Bitcoin Price

What made prices of Bitcoins in India went shooting up? It’s the demand created by demonetization since people want to park their black money (in old currency notes) in Bitcoins. I am not sure how successful they are since all the four exchanges mentioned above sell bitcoins only after accepting thorough KYC documents. In such a case, if the general public is buying Bitcoins out of their bank money (and not black money) then how come demand has gone up so high leading to such a shooting of prices.

Last one week, prices have come down a bit as can be seen in the chart. Today 4th Dec,2016  price is around Rs 60,000 (Rs 10,000 less than its peak) which amounts to $ 882.0 whereas international prices are around $ 763 (source: Coindesk). Hence even today Indian price is about 15% more than the international prices.

Demonetization : Good for Bitcoin Future

Where do we go from here. Will this sudden surge in Bitcoin Demand going to be sustained in Indian Subcontinent? What footprints will this demonetization leave behind on the Bitcoin Chapter in India?

  • Prices might come down and sync with international prices but a spark has been ignited in Indian community.
  • In last one month, more and more awareness about Bitcoins has been brought up – much more than awareness brought up in last one year.
  • More and more Indians are getting aware of Bitcoins and getting to know its advantages and use.
  • India is on the verge of getting fully digitized and Bitcoins is bound to get its share.
  • In last one month there have been much more mention of Bitcoins in news and on TV channels which was hardly heard once or twice in past one year.
  • Government has also shown its concern over increase in Bitcoin prices in Indian market as they very well realize why prices are going up.
  • This spark can lead to a big fire in Indian subcontinent since India is a BIG BIG market. Once this market is triggered, it has the potential of becoming largest market for any commodity or product, leave aside Bitcoins.
  • Indians are now looking more closely in making investments in Bitcoins.

 

I am happy to see Bitcoin gaining popularity and ground in Indian market. All I hope is that Indians may use this technology in responsible way and let the new technology be used for betterment and advancement of lifestyle, keeping ourselves within legal bounding.

2 thoughts on “Effect of Demonetization on Bitcoins in India

  1. Hi There, Can you tell me why there is so much difference in the conversation rates of btc to usd and btc to inr ? 15% is very high if a user wants to purchase in bulk residing in India.

    1. Hi Deepak,

      You are very right. 15% difference in international prices (BTC to USD) and in Indian market (BTC to INR) is a big difference. However this has happened due to demonetization. Due to demonetization, there has been drastic increase in demand. The Bitcoin exchanges do not have enough liquidity. When they have limited number of bitcoins with them and demand is huge, they have no option but to increase the price. No one is selling bitcoins so these exchanges are not receiving any SELL orders. They are only getting BUY orders resulting in a crunch leading to increase in their selling price.

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