India´s Cash Run Ignites Demand for Bitcoin

Isokivi || Creative Commons

The past two weeks generated significance for Bitcoin mostly from the region of India. Talks about the future of the Italian banking sector were also on the agenda while interesting news kept pouring in from China, South Korea and Dubai.

As anticipated in our previous article, the trade of Bitcoin had evidenced a sharp increase in India. This is due to the government´s decision to pull the two most popular banknotes out of circulation. The executive´s intention is to “clear up” the currency as a large number of false banknotes is supposedly still in circulation. This step has seemingly boosted the cause of alternative payment mechanisms such as Bitcoin. Its price currently floats around 900 dollars on the Indian market, adding up to a value 16% higher than the global average. India can thus showcase another example of Bitcoin´s potential to serve as an alternative to national currencies that find themselves in trouble.

Hints of a similar situation possibly emerging in Italy caught the headlines around Europe. Nevertheless, the expected development pattern of this script resembles more the 2013 Cyprus situation. That year saw a tenfold multiplication in the trade of Bitcoin as a result of the  turmoil in local banks and the so-called bail-in. The source currently generating concern in Italy is Monte dei Paschi di Siena, a bank that failed its stress tests in July. The bank´s main issue is its lack of equity. Officials are trying to resolve the bank´s unfavorable condition by issuing shares of a total value of 5 billion dollars. It is questionable whether this decision pays off. If it does not, we can expect more radical steps in the near future. These would most likely benefit Bitcoin, just as they did in Cyprus. It will be equally intriguing to see the outcome of the December referendum aiming to introduce several constitutional changes. By far the most important is the question of strengthening the central government by reducing the powers of local governments and the Senators. In the current constitutional setting, the Senate shares equal powers with the Chamber of Deputies. The results will reflect citizens’ attitudes towards their representatives. After Trump and Brexit, nothing is unimaginable now. A surprising result for the markets would however only benefit Bitcoin.

And now back to Asia. The Chinese Central Bank planners are heading towards a more elaborate application of cryptosystems. The bank has published job vacations seeking to recruit six experts from the field of FinTech and Blockchain, otherwise known as “the ledger”, a technology at the core of Bitcoin and all other cryptocurrencies. The Chinese Central Bank and the government have both previously expressed an intention to own and apply a digital currency, making it easier to keep absolute control over the system. It remains to be seen whether this plan will actually work. However, it still reveals an interesting paradox and an emerging pattern in a socialist government being interested in cryptocurrencies. On the other side of the scale we find Singapore, a country with one of the most favorable business environments in the world. Its central bank has announced a partnership with R3, a consortium of more than 60 banks researching and analysing Blockchain. The bank´s goal is to maximize the application and implementation of benefits Blockchain has to offer – namely low costs, transparency, and security. We have described these and other characteristics in more detail in a recently published study of cryptosystems, containing full analysis of these and other (crypto)questions.

South Korea has embarked on a completely opposite course by recently announcing its intention to regulate digital currencies. The Financial Services Commission decided to proceed with further regulation in the light of the increasing popularity of Bitcoin in the country. The average monthly increase of transactions is 6% higher when compared to the previous year, amounting to a total of 1.3 billion dollars of absolute transaction value since January 2015. It is vital to stress here that the regulations in question will not inhibit the use and trade of Bitcoin. They will probably equal to measures only recently introduced in Japan in the form of requirements for all currency exchanges to be licensed and to uphold consumer rights. A similar approach has also been considered by officials in Dubai. Here it shall be emphasized that such measures do not necessarily carry negative effects, as regulations of this kind might even expand the positive reputation of Bitcoin among citizens.

Translated by Edward Szekeres

Martin Lindak