Could the Silk Road Closure be Good for Bitcoin?
Bitcoin is a volatile currency with little track record, but investors in India and other emerging markets are increasingly taking their chances with the digital currency as their national currencies come under pressure.
Fears that the Federal Reserve will scale back its easy-money policies sent India’s rupee tumbling to record lows against the U.S. dollar this summer. And more recently, Moody’s warned that when the Fed does actually begin tapering its $85 billion in monthly bond purchases, countries with large current-account balances, like India and Brazil, will see even greater capital outflows. The outflows, in turn, will put their currencies and debt ratings further under pressure. In 2013 so far, India’s current-account deficit has grown to a record 4.9% of GDP.
“Entrepreneurs have been quick to capitalize on bitcoin’s potential and are already setting up remittance companies, exchanges and conferences throughout the country.”
That loss of confidence in the rupee has translated into an opportunity for bitcoin. Indian bitcoin client software downloads increased 17.23% in the third quarter compared with the previous quarter, according to digital currency and research firm The Genesis Block. In addition to bitcoin being an alternative store of wealth, the digital currency also allows people in India to send money offshore without having to clear intermediary banks.
“Considering the volatility in developing market currencies like the rupee, it’s not surprising that people in India would be exploring alternatives,” said Greg Schvey, head of digital currency research for The Genesis Block and a former fixed income analyst at Citigroup. “Entrepreneurs have been quick to capitalize on bitcoin’s potential and are already setting up remittance companies, exchanges and conferences throughout the country. Bitcoin also offers near-free monetary transfer which could dramatically benefit India as the world’s largest remittance market.”
Bitcoin downloads measure the adoption of digital currency software that enables the accumulation of bitcoin rather than outright demand for the digital currency itself. However, the metric is seen as a strong gauge of trends toward adopting the digital currency for transaction purposes.
Bitcoin downloads also rose 17.71% in the third quarter in Brazil, whose currency has also suffered outflows amid the global disruption associated with the Fed’s monetary shift.
Together, Brazil and India posted the greatest growth in digital currency downloads among the 30 countries with the most bitcoin downloads of all time. Across the globe, bitcoin downloads are still increasing, but at a slower rate in the U.S., downloads of the digital currency increased 7.82% in the third quarter, compared with a 9.8% average for the 30 countries.