The President-elect of the United States of America, Donald Trump has chosen tech billionaire Elon Musk to lead a newly-created Department of Government Efficiency (DOGE) for his incoming administration. Republican Vivek Ramaswamy will work with Musk on the project – whose acronym refers to Musk’s favourite cryptocurrency Dogecoin.
The acronym for the newly created position, which found place in an official Trump statement, is in many ways symbolic of some of the positive messaging the President-elect had throughout his campaign around cryptocurrencies, which included announcing bitcoin a strategic reserve, and favourable energy policies for crypto miners. Since Trump’s victory, bitcoin has reached an all-time high, and is close to breaching six figures.
Investors had predicted that bitcoin could hit that mark if Trump were to be elected, since his entire campaign featured pro-crypto messaging, among other things. Having Musk – who has been a long time advocate for cryptocurrency — as a key adviser could further bolster investors’ belief in bitcoin, and other digital virtual assets, even if concerns around conflict of interest remain.
This has put the spotlight on India’s crypto ecosystem, which has lost steam over taxation rates, general uncertainty about the future of such currency in the country, and recent cybersecurity concerns following a wipe out of a significant amount of crypto reserves of one of the country’s biggest exchanges.
The bitcoin surge
Late Tuesday night, bitcoin surged past $90,000 for the first time, though the cryptocurrency has since seen some moderation in its spike, trading at around $73,000 at the time of publishing. As such, between November 5 — the day the elections were held in the US — and Tuesday (November 12), the cryptocurrency surged more than 30 per cent.
In fact, not just bitcoin, but on Tuesday, Dogecoin too saw a surge of over 20 per cent, and has grown by more than 150 per cent since Trump’s victory in early November, compared to bitcoin’s 30 per cent. Dogecoin, which is referred to as ‘memecoin’ in crypto parlance, is now the sixth biggest cryptocurrency by market cap.
Memecoins are generally seen as indicators of retail investors’ interest in cryptocurrency. It is usually a marker of investors’ risk appetite at any given point in time. Surging memecoin values generally indicated that retail investors are participating in the market.
— Elon Musk (@elonmusk) November 13, 2024
How India could see the bitcoin surge
In India, the crypto journey has been topsy-turvy, and 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 overall 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 and 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, even as it acknowledged that following India’s success in providing digital payments solutions, and that a CBDC would be the “next logical path”.
But 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 gGold’ 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.
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