The CME bitcoin futures fell around from over $17,500 to a low of about $16,900 on Tuesday
Wednesday's massive crash in bitcoin prices on the Indian cryptocurrency exchanges gave investors in digital currencies the jitters as their premium on trade also plunged from over Rs 1 lakh to Rs 10-20,000 per bitcoin, but it bounced back by late evening trade.
Virtual currency exchanges and suppliers earn a huge mark-up on the cryptocurrency they source or mine from overseas markets and sell to traders or investors in the domestic market. They term this as a premium.
When the CME bitcoin futures fell around from over $17,500 to a low of about $16,900 on Tuesday, it did not take long for the contagion to spread to India as the prices of the widely-traded cryptocurrency sank from over Rs 13 lakh on Tuesday evening to around Rs 10.50 lakh in the early morning trade on Wednesday, only to recover to close to Rs12.40 lakh in the late evening trade.
Bitcoin prices have soared 17-fold this year.
Shivam Thakral, co-founder and CEO of BuyUCoin, a portal allows trading 30 virtual currencies, told DNA Money that premium had dwindled to the one of the lowest levels due to government coming down heavily on high-volume traders and some of the suppliers of cryptocurrencies in the Indian market.
"The premium on rate (of bitcoin) in Indian market over its rate overseas markets was only Rs 10,000 or Rs 20,000 today (Wednesday) morning compared with Rs1.30-40 lakh just a day back. I have been talking to suppliers, who supply bitcoins to me. Today, no one is able to provide me with bitcoins. I think it is because the government has put some restriction and have sent I-T (income tax) notices to over 4-5 lakh cryptocurrency traders".
According to him, one of the major reason for the slump in international prices of bitcoin futures was shorting by some investors in the US.
He, however, felt there was a domestic factor also responsible for the bitcoin prices taking a beating in the local market.
"The traders and suppliers coming under the scanner of the I-T department have cautioned many players in the market. They are being cautious while trading," he said.
Satish Mugulavalli, director of technology, YourNest Venture Capital, said Wednesday's fall in the bitcoin prices had to be seen in the context of events in the current week. "I see a big correction coming and you have to see the events of this week – bitcoin futures got traded for the first time on the US exchange. Till now, bitcoin investors were happy because its prices were only going up but in futures people make money when there is a difference – that could be positive or negative," he said.
He also felt that the scope for manipulation was very high in bitcoin because 36% of its holding was reportedly with 1,000 people.
"There is an imbalance in holding and there is no governing authority which prevents multiple investors colluding together and dropping or raising prices. It's a currency fraught with significant amount of risk," said Mugulavalli.
According to him, the digital currency was "in such a floating state that it was very hard to determine what could have actually caused this crash"
Bengaluru-based, venture capitalist who is studying virtual currencies to begin trading in them, believes that "bitcoin value, over the next six to nine months, will go down at different points in time and that Wednesday's event may not be a one-off".
Even as the bitcoin tumbled, its smaller rival bitcoin cash, surged for a second day, up 24.5% to a record high of over $2,700 after Coinbase, a leading platform for trading bitcoin, on Tuesday allowed its customers to buy and sell it .
"It's just a sell off of bitcoin to go towards bitcoin cash. As I mentioned, you will see this several times over the next few months. People will diversify their crypo (currency) holdings. Most of the allocation was in bitcoin till now," said Mugulavalli.
CRYPTIC VALUE
- The CME bitcoin futures fell around from over $17,500 to a low of about $16,900 on Tuesday
- Consequently, the prices of the cryptocurrency in India sank to around Rs 10.50 lakh in the early morning trade on Wednesday from Rs 13 lakh
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