Dear Reader,
The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. In what is considered the most significant decision in the cryptocurrency world, US President Donald Trump fulfilled his election promise by establishing a strategic cryptocurrency reserve for the United States. The Reserve includes Bitcoin, Ether, XRP, Solana, and Cardano.
In a social media post, the President said, "A US Crypto Reserve will elevate this critical industry after years of corrupt attacks by the Biden Administration, which is why my Executive Order on Digital Assets directed the Presidential Working Group to move forward on a Crypto Strategic Reserve that includes XRP, SOL, and ADA, I will make sure the US is the Crypto Capital of the World." In a follow-up post, he added, "And, obviously, BTC and ETH, as other valuable Cryptocurrencies, will be at the heart of the Reserve. I also love Bitcoin and Ethereum!"
The news acted as a catalyst for a rally in cryptocurrencies. Following the announcement, XRP surged 33 percent, Solana jumped 25 percent, Cardano increased 60 percent, Bitcoin rose 10 percent, and Ether gained 13 percent.
Trump's decision has legalised cryptocurrencies, incorporating them into the country's broader financial system. While the specifics regarding reserves have yet to be disclosed, he has officially legitimised this asset class. Many countries, including India, were waiting for the US to take the lead in legalising cryptocurrencies.
The term "strategic reserve" is significant for the industry, especially since Trump previously supported the idea of "stockpiling" cryptocurrencies that have been confiscated by authorities. The key difference lies in their definitions: a "reserve" allows the government to actively trade in the market by buying or selling cryptocurrencies. In contrast, a "stockpile" implies that the US government would not sell the cryptocurrencies it holds.
Some analysts are concerned that future governments may sell all cryptocurrencies since they have been classified as reserves. Others criticise this idea, arguing that blockchain-based currencies were created as an alternative to the current financial system.
The industry has welcomed alternative voices, and overall, there is satisfaction that they have finally gained the credibility their enthusiasts sought. However, with this recognition will come regulation, which may limit the free movement that the unregulated industry has enjoyed until now.
It is likely that other governments and institutions will begin to adopt cryptocurrencies, making them a legal and valid asset class for investors to allocate their funds. Following the clearance from the US government, analysts anticipate that more asset management companies will announce new investment schemes. Franklin Templeton Investments, along with several others, is seeking regulatory approval to launch a new cryptocurrency index exchange-traded fund.
As for India, trading volume in cryptocurrencies has increased significantly. One important outcome of this development is the improved regulatory clarity. For years, the lack of clear regulations has been a major obstacle to cryptocurrency adoption. With the introduction of a government-backed reserve, we can expect clearer guidelines for taxation, trading, and institutional investment to emerge. This will provide much-needed stability for both businesses and investors.
Cryptocurrency trading volume in India is on the rise, with trading on four of the largest exchanges reaching $1.9 billion during the October to December quarter, according to data from the aggregator CoinGecko. Kush Wadhwa, partner at the consulting firm Grant Thornton Bharat, predicts that India's crypto market will grow from $2.5 billion last year to over $15 billion by 2035, with a compound annual growth rate of 18.5 percent.
A significant portion of cryptocurrency trading volume is coming from smaller cities rather than major metropolitan areas. According to CoinSwitch, in 2024, out of the top 10 cities driving crypto activity in India, seven were lower-tier cities, including Jaipur, Lucknow, and Pune.
Unlike the US government, which is taking a more proactive approach, the Indian government is choosing to wait for other countries to establish regulations. So far, its main action has been to impose some of the highest taxes in the world on cryptocurrency trading.
The government needs to announce proper regulations to monitor the rapidly growing cryptocurrency asset class. As restrictions on derivative trading in equities have been introduced, traders are shifting towards cryptocurrencies, which are more volatile and offer significantly better leverage.
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