Prices have skyrocketed at Indian Bitcoin exchange platforms following the government decision to denominate the 500 and 1,000 Rupees currency notes with only a night's notice.

On November 8, Indian Prime Minister Narendra Modi shocked all his countrymen when he announced the government's decision to make all 500 and 1,000 Rupees currency notes useless starting the next day.

The government official said that terrorist groups and money laundering groups were stock-piling currency notes in an attempt to avoid paying taxes and hiding illicit funds.

By denominating the 500 and 1,000 Rupees currency notes, which accounted for roughly 90% of all Indian money, the government hoped to render this cash stockpiles useless, or at least trick crooks to go to a bank and exchange their notes, effectively declaring all their funds.

Indians turn to mobile payment wallet apps and Bitcoin

While a smart idea in hindsight, the decision backfired after a few days as Indians were left with no means of paying for food and utilities.

Without money in their pockets and limited to small daily ATM withdrawls, Indians turned to mobile wallets, but also to Bitcoin.

As demand for Bitcoin grew, the market at Indian-based Bitcoin-to-Rupee exchange platforms went through the roof as prices currently reached a 35% premium (premium = term used to describe the value above the standard Bitcoin - US dollar exchange rate).

While 1 Bitcoin is valued at $735 (50,405 Rupees) at almost all Bitcoin exchanges over the world, this is not true in India.

If you wanted to buy 1 Bitcoin in India and you'd want to do it with Rupees, it would cost well above that. For example, Bitcoin to Rupee service UnoCoin is currently selling 1 Bitcoin for 62,352 Rupees, which is $909, after previously today the price reached a whopping $985.

Fellow service Zebpay is at 61,828 Rupees per Bitcoin, which is $901. During the weekend, the Bitcoin-Rupee exchange rate at Zebpay reached its a staggering value of $996 per Bitcoin.

Bitcoin-Rupee exchange at Zebpay

Similarly, at Bitcoin India, the price is 65,846 Rupees ($960), while at Coinsecure.in, the buy price peaked today at 61,969 Rupees ($903).

The reason for this 35% premium rate is due to problems in accessing liquidity at Indian banks. The only currency with a higher Bitcoin premium is the Nigerian Naira, going for around $1,250 per Bitcoin, meaning a premium of 70%.

The Indian government already introduced new 500 and 2,000 Rupees notes, but they've limited withdrawls at 4,000 Rupees ($60) per day.

In the meantime, Indians are overpaying for Bitcoin in the process of finding alternatives means of payment until the current currency notes crisis ends.