In the wake of the demonetization of the 500 and 1000 Rupee notes as announced by the Indian Prime Minister Narenda Modi on November 8, 2016, in an attempt to crack down on the black money economy; rumors have spread like wildfire among Indian merchants that gold could be the next target of Modi’s wrath.

If the attack on cash wasn’t foreshadowing enough, an amendment bill, just introduced by Finance Minister Arun Jaitley, has called for a 50% tax on unaccounted deposits (black money) or 85% tax if caught.

India, a country which citizens have historically paid only 1% income tax, these changes have brought a serious crackdown to the underground economy in an attempt to thwart black money trade and increase the breath of the tax authority.

 

Since Modi’s tenure as Prime Minister, he has vowed to cleanse the country of black money and corruption, which accounts for as much as 20% of the country’s GDP. Gold, which India is the second largest consumer in the world, and is one of the primary means to hold unaccounted for wealth in India, is not likely to be far from Modi’s crosshairs.

With the recent spike in demand for Bitcoin in India causing massive disparity in price between Indian exchanges and more mature exchanges in other parts of the world, there is no doubt that the people of India are considering Bitcoin as an alternative means to hold unaccounted wealth outside the reach of Modi’s campaign.  If Modi does in fact enact a ban on the imports of gold, which seems an increasing possibility, the demand for Bitcoin could increase dramatically beyond what we are already seeing for the country.

Consider the volume chart below courtesy of coin dance, which shows that since Modi’s initial announcement to demonetize the 500 and 1000 Rupee notes, Bitcoin volume in Rupees on https://localbitcoins.com/ has increased dramatically.

Week	Volume (INR)
11/12/2016	11,192,335
11/19/2016	16,242,585
11/26/2016	27,670,106

Between the week of Modi’s announcement 11/12 and the week of 11/26, volume on localbitcoins has increased a staggering 147%.  Additionally, as reported on CoinDesk, Unocoin, one of India’s most popular Bitcoin exchanges has just released a mobile wallet for iOS and Android. This is incredibly important in unlocking the ability for a potential mass adoption of Bitcoin in India as statistics show that as of January 2016, that of the 375 million internet users in India, 303 million or 81% were mobile internet users.

Considering an import of gold being a likely scenario in the near future, the massive increase in volume of Bitcoin transactions in India, and the technological advances of the Bitcoin exchanges in India; the conditions are a perfect storm to facilitate a massive increase in Bitcoin demand surpassing what we have seen from the demonetization of the 500 and 1000 Rupee notes in the preceding weeks.   If this scenario plays out, an influx of buyers will flood exchanges, and demand could push the Bitcoin premium in India even higher.

This situation presents a unique opportunity for traders in countries with matured, large volume exchanges to offer Bitcoin via Indian exchanges for a premium and pocket the profit. In practice, this is not so easy, as Indian exchanges are currently only trading in INR (Rupees). This makes withdrawal from participants who do not have a bank in India difficult as they cannot withdrawal Rupees, convert to their local currency and repatriate those earnings back to their country of domicile (due to KYC documentation requirements). However, this presents a unique opportunity for those participants to pair with a partner in India who does have an Indian bank account to facilitate the withdrawal and international bank transfer. The pair of individuals would need to come to terms to split the premium gain and could repeat the process until the market corrects itself and prices stabilize.  Note: an arrangement of the sort should only be conducted with a trusted party; look out for scammers.

Have a different opinion or just want to chat, feel free to contact me at wesdewayne@gmail.com via email or g-chat, or simply leave a comment below.

Happy trading!

Wes