Markets
Mint Primer Two to tango: The return of Bitcoins Trump
Summary
- Donald Trump’s victory is propelling Bitcoin to new highs almost every day, with the cryptocurrency breaching the $81,000 mark for the first time on Monday.
As Donald Trump prepares to take charge as president, the talk of the town once again is cryptocurrencies, with analysts saying Bitcoin prices may cross $100,000 soon. Mint explains the connection between the cryptocurrency surge and Trump’s return to power.
Why has Bitcoin surged recently?
Donald Trump’s victory is propelling Bitcoin to new highs almost every day, with the cryptocurrency breaching the $81,000 mark for the first time on Monday. Since the beginning of the year Bitcoin has returned almost 93%, besting gold and equities, on the back of Trump’s pro-digital assets stance. During his campaign Trump promised to build a national cryptocurrency stockpile, slash regulatory burdens and mine more cryptocurrencies in America. The US Federal Reserve’s recent interest rate cuts have made it cheaper to borrow money and are likely to sustain the demand for Bitcoin going forward.
Read more: Trump 2.0: How to make your portfolio great again
What role did Musk and Trump play?
Trump has not always been a fan of cryptocurrencies, even calling it a “scam" during his last term. His tune changed after he received the backing of X and Tesla owner Elon Musk, who is a well-known digital currency enthusiast. Musk has publicly promoted Bitcoin as a tool of “financial freedom" during Trump’s rallies. Electric car maker Tesla, the fourth largest holder of Bitcoin among US public companies, has recently sold approximately $765 million worth of Bitcoin to unknown wallets. Tesla invested around $1.5 billion in Bitcoin in 2021 but sold most of its holdings when prices crashed in 2022.
How is the US regulating cryptocurrencies?
The US Securities and Exchange Commission classifies them as securities and has taken more than 100 actions against crypto firms. The Commodity Futures Trading Commission views them as commodities as it regulates the futures market for cryptocurrencies. The Internal Revenue Service treats and regulates cryptocurrencies as properties.
What does the rest of the world think?
Canada treats cryptocurrencies as commodities and regulates crypto trading platforms by requiring registration with provincial agencies. The UK regulates digital asset companies, but generally does not make rules for currencies. The European Union asks firms to obtain a licence to issue or trade in cryptocurrencies, and service providers to obtain the names of senders and beneficiaries of all transactions, among a slew of well-defined rules. El Salvador stands out for being the only country to declare Bitcoin as legal tender.
Read more: Trump 2.0: The Indian IT sector may need to re-evaluate its US-centric model
What does it mean for Indian investors?
They find the growing presence of large institutional players in cryptocurrencies comforting. The US’s largest asset management company, Blackrock’s spot Bitcoin ETF is one of the fastest growing exchange traded funds. However, Indian investors, looking to jump on the crypto bandwagon, will be bogged down by a hefty 30% capital gains tax along with a 1% tax deducted at source on transactions. A recent hacking at a leading crypto exchange, WazirX, highlights the risky and volatile nature of these digital assets.
