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Bitcoin Absorbs Indian Central Bank Warning with Resiliency

January 5, 2014 at 20:43 by Wade Powers

On December 24th, 2013, the Reserve Bank of India issued a warning about trading virtual currencies like Bitcoin.  The Telegraph reported on December 27th, 2013, that the Central Indian Bank had issued the following warning:

Virtual currencies, including Bitcoins were exposing themselves to potential financial, legal, customer protection and security related risks.  There is no underlying or backing of any asset for virtual currencies and as such their value seems to be a matter of speculation.

The RBI stopped short of any sort of ban on the virtual currency, but the announcement had an immediate impact on the local bitcoin community.  Several prominent Bitcoin Exchanges in India announced that they would be temporarily shutting down services.  From Business Insider, also on December 27th, 2013:

BuySellBitCo.in closed its platform, citing an advisory by the Reserve Bank of India issued on Christmas Eve highlighting the risks of trading in digital currencies. At the last rate posted by BuySellBitCo.in, which was conducting about 12 million rupees worth of Bitcoin transactions monthly, according to Indian media, one Bitcoin was selling for 48,039 rupees ($776).

Aside from the unfortunate position Bitcoin enthusiasts in India find themselves in, the headline of this story is what this announcement would do to the price of Bitcoin itself.  After all, the Bitcoin community had just gone through the fallout of the Chinese Central Bank announcement on December 5th, 2013, stating that Chinese banking institutions could no longer process Bitcoin transactions, as reported here by Bloomberg.  Bitcoin plunged almost 50% from it’s all time high of $1200 on the popular Mt. Gox following the news.  This fall is highlighted on the bitcoincharts.com chart below, by the three large red candles just after the December 4th, 2013 ban.

1chart

India isn’t China, with a GDP that puts it at 11th overall in 2013 according to this CNN Report.  The fallout from the announcement by the RBI would not be as pronounced as the one from China.  That being said, India’s economy has become a force to be reckoned with.  According to The Times of India, the rising country will have the worlds third largest economy by 2028.  With the closure of it’s most popular exchange, a change in the market seemed likely.  Another look at the chart above will confirm that this is not the case, and impressively so for those who believe in Bitcoin as a viable currency.  The world’s leading digital currency continued a slow march back towards $1000, with no visible affects to be seen from the Indian reaction to the RBI announcement.  Late last week it crossed the $900 mark, just weeks after it had crashed to 50% of it’s high water mark.

So far in 2014, Bitcoin has started the year with a distinct air of confidence.  It continues to strongly weather the storm of governments finally paying attention to it, and looming calls for regulation.  Massive online gaming company, Zynga, recently announced that it was testing Bitcoin payments, with Bitpay acting as a processor, according to Techcrunch.  As large and well known companies like Zynga, Overstock, and highly publicized file hosting service Mega start to come aboard, there is quantifiable momentum behind Bitcoin at the moment.  Time will tell if that momentum can be sustained.

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