Was India Responsible for Bitcoin’s Latest Surge?
It has been a weekend of major milestones for bitcoin (BTC). The largest cryptocurrency crossed $10,000 on Friday and blew past $11,000 less than 12 hours later, underscoring a new wave of pent-up demand for an asset that has vastly outperformed traditional financial markets through 2019.
While bitcoin’s sudden rally cannot be pinned down to only one reason, India has emerged as an unlikely source of demand for the digital asset. As Forbes recently pointed out, India’s bitcoin market may be experiencing the so-called Streisand effect, creating a sense of urgency among users to load up on the virtual currency ahead of a potential ban.
Is India Banning Cryptocurrency? Nobody Knows
India’s cryptocurrency regulations have long been a complex web of confusion and inconsistencies. In April 2018, the Reserve Bank of India (RBI) barred state-regulated financial institutions from servicing cryptocurrency exchanges and gave them three months to get their affairs in order. After multiple appeals from domestic exchanges, the Supreme Court upheld the central bank’s edict.
“Under the new guidelines, financial institutions are forbidden from dealing with digital currency exchanges directly and must also prevent retail customers from purchasing cryptocurrencies through their bank accounts.” – Hacked (July 3, 2018)
Despite the ban, there was strong reason to believe that Indian authorities were developing a new regulatory framework to permit digital currency ownership and trading. The RBI even appointed a sub-committee on cryptocurrency, which recommended a draft bill on how to regulate the nascent asset class. Subhash Chandra Garg, secretary of India’s department of economic affairs, was tasked with leading the committee.
A senior government official interviewed by Quartz later said that a blanket ban on digital assets was highly unlikely.
“I don’t think anyone is really thinking of banning it [cryptocurrencies] altogether.” the official said. “The issue here is about regulating the trade and we need to know where the money is coming from. Allowing it as a commodity may let us better regulate trade and so that is being considered.”
After a year of quiet on the matter, Bloomberg came out with a report earlier this month claiming that Garg’s sub-committee has proposed a ten-year jail term for those who mine, sell or hold cryptocurrencies. The RBI denied any involvement in the matter.
At this stage, nobody knows for sure whether cryptocurrency trading will be banned in India or not. As Forbes noted, users in the country may already be planning for the worst. In fact, the rumor of a potential ban has created more awareness of the need for a decentralized, censorship-resistant asset class. And this may be partly responsible for the latest bitcoin buying frenzy.
The Streisand effect describes a phenomenon whereby an attempt to hide or censor information unintentionally makes it more widely available. India’s attempt to censure digital assets, if true, may have created more pent-up demand for bitcoin.
Bitcoin’s price smashed through $11,200 on Saturday, its highest in 15 months. At its highest point, the leading digital currency was up nearly 200% year-to-date. Should bitcoin continue to hold above $10,000, there’s very little resistance standing in the way of $15,000 and eventually $20,000, which would mark a new all-time high.
At the time of writing Sunday, the BTC/USD exchange rate was valued at $10,730 on Bitstamp. Its total market capitalization is worth $189.6 billion.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Chart via TradingView.