Bitcoin's price jump appears to be driven by Indian buyers

Earlier this week India announced that it was banning 500 and 1000 rupee notes by the end of the year. People who hold those notes have just six weeks to present them to a bank or find themselves holding worthless notes. They are being replaced with new 500 and 2000 rupee notes.

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1000 rupees is just $14.72, which is the reason so many people are alarmed.

According to Bloomberg, the aim of this is to curb the black economy and force people to use electronic banking instead of the traditional cash economy.

What seems to be happening instead is that people are rushing to spend the money and buy anything valuable they can. To quote Bloomberg again:

There was a surge in demand for luxury watches after Modi’s sudden announcement as wealthy Indians rushed to make costly purchases with unaccounted cash. One luxury watch outlet in north-west Mumbai saw 45 units of Rolex watches sold on a single day, according to a representative of a watchmaker, who was present when the sales took place. Demand matched what the shop would usually sell in a month and the store had to turn away customers, the person said, asking not to be identified because the person is not authorized to speak to the media.

A new gold rush also emerged soon after Modi’s announcement. “Jewelers who had shut shop for the day on Nov. 8 had to reopen their stores within a couple of hours and were selling gold up to 4 a.m.,” Chirag Thakkar, a director at gold wholesaler Amrapali Group, said by phone from Ahmedabad in Modi’s home state of Gujarat. “Customers were lining up with bags of cash. Some jewelers even had to call the police to organize the crowds.” Customers paid as much as 52,000 rupees per 10 grams, almost double the current prices, he said.

Of course Bitcoin could be an even better thing to buy than a Rolex watch, as it may hold it's value long term. Bitcoin today hit $895 on Zebpay, India's main bitcoin exchange. On western exchanges it is $745 - the problem seems to be that it is tough to arbitrage because India applies capital controls.

According to Reddit, some Indians who are in the United States are attempting arbitrage (buying bitcoin in the US with localbitcoins and selling on the Indian exchanges). Presumably they won't be trying to get their rupees back out to the USA. I wouldn't be surprised if the remittance market jumped on this too.

Will the western exchanges catch up on the bitcoin price surge? Will Indians switch from buying with cash to buying with bitcoin, by-passing their banking system altogether? If they do, this might be the Black Swan event that Bitcoin has been waiting for to go completely mainstream. And to the moon of course.