Bitcoin prices have soared to all-time highs, fuelled by an optimism around Donald Trump’s win in the US polls and raising hopes of a more favourable view on cryptocurrencies. However, the jury is still out on whether all of Trump’s pro-crypto pledges are feasible, explains Ritwik Sharma
Is the optimism realistic?
Since Donald Trump was re-elected as US President earlier this month, the value of Bitcoin, the oldest and largest cryptocurrency, has soared. Bitcoin’s price crossed $93,000 last week. Apart from Bitcoin, popular cryptocurrencies like Dogecoin, which is backed by Trump ally Elon Musk, and Ethereum have been also experiencing a price surge.
However, there has been moderation in both the spot and derivative markets since then. The choppy trading reflects shifting assessments of the impact of Trump’s policy agenda. As a Bloomberg report points out, though Trump has made various pro-crypto pledges, the jury is still out on the timetable for implementation and whether all are feasible — such as setting up a US Bitcoin stockpile. “Investors are scaling back expectations for Federal Reserve interest-rate cuts in a solid US economy, a possible hurdle for crypto since liquidity conditions can influence speculative demand for digital tokens,” it said. Some of the optimism is being tempered by inflation risks from the prospect of trade tariffs and deficit-spending to fund tax cuts.
How Trump can boost the cryptocurrency market
From being a sceptic earlier, Trump has embraced cryptocurrencies and has even accepted crypto donations during his presidential campaign. Investors are hoping for a friendly administration, as Trump has earlier this year vowed to make the US “the crypto capital of the planet”. It’s also not a coincidence that the acronym of the new department of government efficiency, to be jointly headed by Musk, is DOGE (the billionaire’s favourite cryptocurrency).
Under Joe Biden, the US has cracked down on crypto firms. However, Trump launched a new crypto firm called World Liberty Financial in September, has proposed to create a national Bitcoin reserve akin to gold, and plans to oust Securities and Exchange Commission chair Gary Gensler who oversaw a crackdown on the crypto sector.
How will this impact crypto trading in India?
Investment firm Bernstein has advised India to view Bitcoin as a strategic asset, arguing that it should not ignore its potential as the cryptocurrency is worth $1.5 trillion and has yielded 50% annual returns over the last four years. In India, there is no regulation on virtual digital assets but they are not prohibited.
At the same time, the Indian government does not recognise crypto as legal tender. With a more favourable stance under Trump, the US is likely to introduce regulations that may influence other geographies. Experts believe India might be pressured to review its stance — that includes high taxation on crypto gains — and enforce regulations. For crypto investors and businesses in India, the changes in the US may also open up possibilities of smoother cross-border partnerships and transactions and improve the market sentiment.
Correlation with other financial markets
Bitcoin’s all-time high price has elevated its market capitalisation, making it the eighth-largest traded asset globally (ahead of silver). Post-US elections, gold, which is seen as a reliable hedge against inflation, has declined nearly 5%. Gavekal Research has attributed the divergent paths to varying market reactions to Trump’s win, with a Republican win viewed as bearish for gold but a positive for Bitcoin and cryptocurrencies.
Research by International Monetary Fund in 2022 suggested that crypto and equity markets had become increasingly interlinked. Spillovers from price volatility of Bitcoin to the S&P 500 and MSCI emerging markets indices grew by 12-16 percentage points since the start of the Covid-19 pandemic, it said, while advising close monitoring of crypto asset markets and the adoption of suitable regulatory policies to mitigate potential risks to financial stability.
How safe is it to invest in?
Investors are drawn to include digital assets such as crypto in their portfolio, given their potential high returns as indicated by the recent Bitcoin price rally. Besides, they are easily accessible across regions. However, the crypto market is known to be volatile, so both risks and rewards can be high. Also, a lack of oversight means it lies in a regulatory grey zone.
Another critical drawback is that despite the security promised by the blockchain technology that runs cryptos, trading platforms remain vulnerable. For example, India-based crypto exchange WazirX lost over $230 million in a cyberattack in July.transactions and improve the market sentiment.
