Almost immediately after the announcement by Indian Prime Minister Narendra Modi to demonetize 500 and 1,000 rupee banknotes on Nov. 9, the demand for Bitcoin in leading Indian exchanges began to surge. However, experts state that a premium on Bitcoin price had existed even before the demonetization.

Currently, investors and buyers on major Indian Bitcoin exchanges and trading platforms, including Coinsecure, Unocoin and Local Bitcoins, are trading Bitcoin at around 61,223 INR, or $900, nearly 17 percent above the average Bitcoin price on most global Bitcoin exchanges.

Capital сontrols and demonetization

India’s strict capital flow controls and financial regulations disallow individuals and companies from moving money out of the country. Thus, arbitrage has always existed in the Indian Bitcoin market.

However, Prime Minister Modi’s surprise announcement in early November to demonetize two widely used bank notes as a part of an ongoing initiative to crackdown on corruption and illicit cash reserves, led the demand for Bitcoin in India to reach multi-month highs, resulting in the price of Bitcoin in India to break the $900 margin.

On Nov. 15, Bitcoin expert and trader Tuur Demeester revealed that Bitcoin was being traded at $806, 13 percent above the global average.

On Nov. 18, just three days after Demeester’s announcement, the price of Bitcoin in the Indian market has jumped $100, representing the desperation of Indian residents and citizens to avoid capital controls and rapid economic change.

National panic

The  demonetization of 500 and 1,000 rupee bank notes also triggered national panic, as individuals rushed to ATMs and banks in an attempt to secure cash for daily use. People began to line up to use ATMs for over 10 hours.

Indian media outlets also reported that 33 people died out of exhaustion waiting to secure legal bank notes in ATMs, after being forced to wait in line for up to 24 hours in order to withdraw cash.

“Lakshminarayana, 75, collapsed and was declared dead while waiting in a queue for over two hours outside a bank in Secunderabad, Telangana,” reported the Indian Express.

Although it is difficult to speculate on the trend of Bitcoin within the Indian market over the next few weeks, it is important to remember that the premium on Bitcoin price had existed in India prior to the demonetization and will continue to exist if the government maintains strict capital controls.