Bitcoin prices surged past the $11,000 level on Tuesday, marking a steep recovery from its recent lows of around $5,000 in March 2020. The cryptocurrency was trading at around $10,972 at the time of writing this report on Wednesday.
The covid-19 crisis had battered financial assets across the world in March, including cryptocurrencies. Along with the rebound in prices, interest in cryptocurrency in India has also staged a recovery, say experts. A Supreme Court of India ruling in March, striking down the Reserve Bank of India’s (RBI) ban on crypto payments imposed in 2018 has also acted as a tailwind for the cryptocurrency investment.
“There is a huge positive sentiment around Bitcoin right now. With its prices going up, a lot of dormant holders are coming back and traders are trading more to book profits. Bitcoin’s price rally is also causing other altcoin prices to increase. As a result, we’re seeing a big jump in our trading volume. It will be exciting to see where Bitcoin price lands next,” said Nischal Shetty, founder and CEO, WazirX, a cryptocurrency exchange in India.
Altcoins are other cryptocurrencies that were launched after the success of Bitcoin.
Sumit Gupta, co-founder and CEO, CoinDCX, another cryptocurrency exchange, outlined two reasons for the rebound. “The surge in bitcoin prices comes amid a rush for safe-haven assets that are considered alternatives to cash and stocks. It has been fueled by the covid-19 pandemic that has driven the global economy into a recession,” he said. “There’s also the decreased supply of available bitcoin, attributed to the halving of coins in circulation that happened earlier this year,” he added.
An inbuilt feature of bitcoin mining is the halving of rewards given to bitcoin miners for mining the cryptocurrency periodically (usually every four years). This tends to cut in half, the new bitcoin that is released into circulation.
Ajeet Khurana, member, Blockchain and Cryptocurrency Committee of the Internet and Mobile Association of India (IAMAI) and former CEO of Zebpay focused more on the participants in the crypto market to explain the surge in bitcoin prices.
“The common investor in any asset class is primarily driven by asset price inflation. The trader in an asset class is driven by volatility, and expects to make money on price movements in both directions. For both of these, bitcoin has been a delight in the recent past,” he explained.
Khurana also believes that crypto investors do not invest in other asset classes and hence the rise in bitcoin prices could fuel a surge in crypto market participants, both investors and traders. In other words, the cult-like following of cryptocurrency gets strengthened when there is a rally in its prices.
Despite the Supreme Court ruling on RBI’s payments ban, cryptocurrency still does not have a regulatory framework in India. Moreover, a draft government bill may criminalize the mere possession of cryptocurrency in its current form as we reported here.
Investors should take this into account while evaluating the cryptocurrency market.