The interest in the digital currency bitcoin has been on the rise in India since the summer of last year. As the value of the digital currency has increased substantially since early 2016, many Indians started to take notice and started to invest money in this new digital asset. However, it was after Prime Minister Modi’s announcement at the beginning of November to demonetise India’s highest denomination rupee notes in a push for India to become a cashless society that bitcoin received a massive boost in demand in India.
Bitcoin is a digital currency that only exists online and cannot be controlled by any government or central bank as it is built on an immutable peer-to-peer network called the blockchain.
As the government wants to stamp out the use of cash, which is driving India’s multi-billion dollar black market economy, digital payments are on the rise. According to data from the central bank, digital payments have increased almost 43% from November to December, while around 41% of SMEs have stated that their clients have shifted to using bank checks or digital payments since the demonetisation, according to a survey conducted by Standard & Poor’s.
Somewhat unsurprisingly, as the demand for digital payments is increasing so is the demand for the digital currency bitcoin. All three major bitcoin exchanges in India, Unocoin, CoinSecure and Zebpay have reported a surge in user numbers and bitcoin trading activity since the new currency reform.
Zebpay’s bitcoin trading volumes increased by 25% in the month of the demonitisation announcement and their user base increased by 50,000 users in November, which is more than double their usual monthly user growth figures. Unocoin witnessed a threefold increase in users since the demonetisation and Coinsecure experienced a 300% increase in user registrations in the month of November.
Many Indian currency traders have become interested in the digital currency. Nowadays, they are getting information from their brokers via different social channels, such as the Facebook page of Saxon Trade for example, which is regularly being updated with market-relevant news. Twitter feeds have also become a popular source of information for traders looking to capitalise on the new bitcoin “gold rush”.
Some Indians are investing in bitcoin long-term as they view it as a digital alternative to gold, while some traders are speculating purely on short-term bitcoin price trends. Given bitcoin’s volatility, the digital currency provides an excellent opportunity to make short-term trading gains.
However, it is the volatility of bitcoin that has led the Reserve Bank of India to issue a warning against the digital currency. In a press release from February 1st, 2017, the RBI stated: “The Reserve Bank of India advises that it has not given any license/authorization to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.”
Despite the RBI’s warning about the use of bitcoin, there is currently no sign that the central bank or the government have any intention of stunting the growth of bitcoin in India. Should, however, the black market economy start to adopt the anonymous digital currency bitcoin instead of using cash as their new preferred payment system, then it would not be surprising if the authorities were to change their stance on the use of anonymous digital currencies such as bitcoin and potentially place a ban on them.