Bitcoin breaches $100K: What is behind the cryptocurrency’s surge?

Investors had predicted bitcoin could hit that mark if Trump were to be elected, since his entire campaign featured pro-crypto messaging.

How did Bitcoin rise to a historic high?

One key Trump pick is Paul Atkins, to lead the Securities and Exchange Commission (SEC) that regulates cryptocurrency. Atkins is widely considered a cryptocurrency advocate. Bitcoin touched $100,000 just hours after his name was announced.

Under the Joe Biden administration, the SEC head Gary Gensler had cracked down on the crypto industry. The SEC sued companies for fraud and money laundering and assessed billions of dollars in fines.

Trump, once a crypto sceptic, turned around in the run-up to the 2024 Presidential elections. His campaign featured positive messaging around cryptocurrencies, such as the announcement of bitcoin as a strategic reserve, and favourable energy policies for crypto miners. His 180-turn on crypto was widely viewed as a way to attract younger 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 begin to embrace blockchain technology, paving the way for broader adoption and investment in digital assets. This renewed enthusiasm reflects a maturing ecosystem poised for sustained growth,” said Vishal Sacheendran, Head of Regional Markets at Binance.

What could be the impact in India?

In India, the crypto journey has been topsy-turvy. Investors might not share the same enthusiasm as their American counterparts owing to factors like a high taxation rate on incomes from cryptocurrencies, and the banking sectors’ less-than-kind outlook towards the asset.

In 2018, the Central Board of Direct Taxes had submitted a draft scheme to the finance ministry for banning virtual currencies. A month later, the RBI restrained banks from dealing in cryptocurrencies, a decision that had to be reversed by the Supreme Court in 2020.

Despite this, the banking regulator has been vocal about its problems with crypto-assets, having identified them as “a macro-economic risk”. In July 2022, underscoring that the RBI had sought a ban, Finance Minister Nirmala Sitharaman said in Parliament that “international collaboration” would be needed for “any effective regulation or ban” on cryptocurrency as the digital currency is borderless in nature.

The government had, in 2022, imposed a tax on “any income from transfer of any virtual digital asset” at a rate of 30 per cent, along with a 1 per cent tax deduction at source (TDS) on each transaction.

However, a paper that was prepared by the International Monetary Fund (IMF) and the Financial Stability Board (FSB), at the request of the Indian G20 Presidency last year, called for licensing crypto service providers, while suggesting that an outright ban might not work given the borderless nature of cryptocurrencies.

On account of the latest surge in cryptocurrencies, Bernstein in a recent note asked whether India can “afford to ignore Bitcoin”. The note further added that the crypto narrative in India “has been caught in this false premise of Central bank digital currencies (CBDC) and what the government calls private crypto.

“This framing is its own pitfall,” the note said.

The note emphasised that Indian investors had “missed the strong proposition” of bitcoin by framing it as private currency. It said the cryptocurrency could be a way for governments to build reserves.

“India has de-risked gold custody by moving almost 100 tonnes of gold back to India from the UK. Bitcoin is a way for governments to build ‘digital gold’ reserves, without the risk of censorship by nations that physically custody gold, in a world where international relations are fragile and dollar reserves are subject to US fiscal risks,” the Bernstein note added.