Bitcoin surpassed $100,000 for the first time on Wednesday (Dec 4), thanks to Donald Trump’s re-entry into the White House and expectations that some of his administration picks will show more regulatory leniency towards cryptocurrencies than their predecessors.
Bitcoin is up 130% for the year, with the US election rally accounting for a significant portion of its gains. It last saw a sharp rise after Trump picked tech billionaire Elon Musk to head the new Department of Government Efficiency (DOGE). The acronym refers to Dogecoin, Musk’s favorite cryptocurrency.
Investors predicted Bitcoin may reach that mark If Trump were to be elected, his entire campaign would feature pro-crypto messages.
How did Bitcoin reach historic highs?
One of Trump’s top picks to lead the Securities and Exchange Commission (SEC), which regulates cryptocurrencies, is Paul Atkins. Atkins is widely considered a cryptocurrency advocate. Bitcoin touched $100,000 within hours of his name being announced.
Under the Joe Biden administration, SEC chief Gary Gensler cracked down on the crypto industry. The SEC prosecuted companies for fraud and money laundering and fined them billions of dollars.
Trump, once a crypto skeptic, returned in the run-up to the 2024 presidential election. His campaign featured positive messages around cryptocurrency, such as announcing bitcoin as a strategic reserve, and favorable energy policies for crypto miners. His 180-turn on crypto was widely seen as a way to attract young male voters.
Trump has also launched his own cryptocurrency business called World Liberty Financial.
“The cryptocurrency market is experiencing a surge in optimism as governments and institutions worldwide embrace blockchain technology, paving the way for wider adoption and investment in digital assets. This renewed enthusiasm reflects an ecosystem poised for sustained growth,” Binance’s Regional Markets Head said. Vishal Sachendran said.
What can be the impact in India?
In India, the crypto journey has been topsy-turvy. Investors may not share the same enthusiasm as their US counterparts due to factors such as high tax rates on income from cryptocurrencies, and the banking sector’s less-than-efficient approach to wealth.
In 2018, the Central Board of Direct Taxes submitted a draft plan to the Finance Ministry to ban virtual currencies. A month later, the RBI banned banks from dealing in cryptocurrencies, a decision that had to be overturned by the Supreme Court in 2020.
Despite this, the banking regulator has been vocal about the problems with crypto-assets, identifying them as “macroeconomic risks”. In July 2022, emphasizing that the RBI was seeking a ban, Finance Minister Nirmala Sitharaman said in Parliament that “any effective regulation or ban” on cryptocurrencies would require “international cooperation” as digital currency is borderless in nature.
The government, in 2022, imposed a tax of 30 percent on “any income arising from the transfer of any virtual digital asset”, along with a tax deduction at source (TDS) of 1 percent on each transaction.
However, a paper prepared by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) at the request of India’s G20 presidency last year called for licensing of crypto service providers, while suggesting that outright bans are unlikely. Works given the borderless nature of cryptocurrencies.
Due to the recent rise in cryptocurrencies, Bernstein asked in a recent note whether India could “ignore Bitcoin”. The note added that the crypto story in India “is caught on this false premise of a central bank digital currency (CBDC) and what the government calls private crypto.
“This framing is its own problem,” the note said.
The note asserted that Indian investors were missing out on a “strong proposition” by framing bitcoin as a private currency. It said cryptocurrency could be a way for governments to build reserves.
“India has de-risked gold custody by repatriating around 100 tonnes of gold from UK to India. “Bitcoin is a way for governments to build ‘digital gold’ reserves, in a world where international relations are weak and dollar reserves are subject to US financial risks, without the risk of censorship by nations that physically hold gold,” Bernstein added.