As you discussed earlier during your live talk,
on November 8th the demonetization happened. Overnight, our currency was
devalued to 80% and then 60%. [Some of] that money fled into bitcoin.
Some part of [the supply], not very much. Afterwards, we went into December and now we are
living in an economy where the geographical arbitrage… If the bitcoin price is $987 dollars in the
United States, here it is more than $1,100. Near March 11th, the SEC made a decision
on the ETF or something in the United States. At that point, the value of bitcoin goes up to
98,000 rupees in India, or say $1,200 U.S. dollars. My question is, how can we go
through this geographical arbitrage? [ANDREAS] Okay, very good. Arbitrage is the process
of diminishing the difference in price of a commodity… in open markets, when it is
being traded at different prices. Arbitrage is something done by individuals who
use the opportunity of the difference in price… to trade that difference until it diminishes to zero. Fully functional open markets have very
small spreads between geographies. If spreads or price differences emerge, they can
be exploited for profit, which means they should… quickly close again, right? This is the normal operation of markets.
What happens when that fails? Why does it fail? The problem here is not bitcoin.
The problem is currency controls. If bitcoin is worth $1,200 dollars here, but
$900 in the United States, the obvious answer is… I [should buy bitcoin in the United States, sell in India. In the process, I don’t transfer bitcoin from
the U.S. to India. Bitcoin has no location. It wasn’t in the U.S. to start with, and it didn’t end up
in India. Bitcoin started and ended on the blockchain. It changed owners, and those owners
may happen to be in India or the U.S., but it doesn’t really matter. I am not transferring money across borders.
I buy bitcoin “in the U.S.,” and sell it “in India.” The difference is profit. Now what? What did I sell it for? Let’s say I sold it for rupees.
I would wire transfer those rupees back to the U.S., and I repeat the cycle until
there is no difference in price. I may be able to do this only once. By the second
time, my bank could have flagged my account. The third time I go to wire transfer, my bank [blocks it].
Maybe they also freeze my account. Maybe I get a visit from some friendly gentlemen
with mustaches, uniforms, and big sticks. [Laughter] They tell me, “You can’t do that.” Where, in
that series of events, is bitcoin the problem? The Bitcoin part was easy; the rest was telling you
that bitcoin is not [actually] worth $1,200. Bitcoin is not worth $1,200. Bitcoin is worth $943
everywhere, but rupees are worth 1/100,000 of bitcoin. The value of bitcoin didn’t change. It takes more rupees
to buy bitcoin because rupees are worth less now. Why? Because you can’t move rupees across borders. The rupee is discounted, depreciated,
against bitcoin as the harder asset. Bitcoin can move “across borders.” Rupees are also
discounted against the U.S. dollar and the euro, etc. The problem isn’t that bitcoin is 20% more expensive;
the problem is that the rupee is worth 20% less… in bitcoin than the dollar is. It is difficult to move rupees,
to move them out of the country. The market is sending you a signal, telling
you a truth, by conducting price discovery. It tells you that rupees in a bank account are worth
less than money that can move across borders. It is telling you something about rupees,
not bitcoin. Bitcoin’s value did not change. If you have a problem with that, petition your
government for the redress of grievances. Address the problem which causes rupees
to be discounted 20% against bitcoin. One of the characteristics of money is that
it must be portable. Your rupees are not as portable. As a result, people will only accept them at a discount
of 20% for the real, hard, portable currency: bitcoin.