Donald Trump win: Bitcoin outlook turns bullish, but Indian investors need to be cautious

"Bitcoin reaching a new record high is a ground-breaking milestone that underscores the strength and maturity of the crypto market,” said Raj Karkara, Chief Operating Officer, ZebPay.

Data available with crypto research platform, CoinGecko showed that trading volumes on global exchanges, including from India, shot up to a three-month high during the past week.

According to experts, the surge in demand for crypto is largely attributed to the favourable political climate of Donald Trump's return to the presidency, which many believe will boost the adoption and regulation of virtual digital assets (VDAs).

Dilip Chenoy, Chairperson of Bharat Web3 Association, said, “As institutional confidence grows, we believe this price increase could pave the way for more balanced regulatory frameworks and mainstream acceptance, enhancing the stability of the digital asset ecosystem.”

Crypto outlook

Shivam Thakral, Chief Executive Officer of BuyUcoin believes that the market is gaining momentum, with a few DeFi assets gaining traction. “Investors expect sustained momentum as market participants react to the election results, suggesting that this surge could pave the way for further growth in the crypto sector,” he said.

Sidharth Sogani, Founder and CEO of cryptocurrency research firm Crebaco has a price target of $100,000 for Bitcoin by December 2024, and $150,000 $200,000 by the second quarter of next year.

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“If large institutions decide to take at least a 1 percent exposure into the crypto space, we estimate $1.3 trillion flowing in from just institutions themselves. If the market cap goes up by two times, given the limited supply of Bitcoin, I see two times' jump in the price,” said Sogani, who also heads Blue Aster Capital, a hedge fund that invests in crypto assets.

Concerns for Indian investors

While crypto market futures seem to be on an upward trajectory, experts suggest Indian investors be careful.

Two major causes of concern for Indian investors are unfavourable taxation regulations and recent hacking episodes at a leading crypto exchange.

Gains arising out of crypto assets in India are taxed at a flat rate of 30 percent irrespective of the individual’s income tax slab rate. In addition, a 1 percent tax deducted at source (TDS) is levied on each transfer of such assets. Further, unlike with mutual funds or stocks, gains in crypto assets cannot be set off against losses in other crypto assets. Further, losses cannot be carried forward for adjustments against gains in future years.

This puts crypto assets at a great disadvantage against traditional investment assets.

Further, the recent hacking episode at a leading crypto exchange, WazirX, has highlighted the risks associated with this asset class and also the lack of regulations that safeguard investors' interest in case of dispute.

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“I don't think there is much scope for buying crypto for asset allocation for Indian investors. The legality and the scope of cryptocurrency are such that in India, it's very difficult to make money, plus the platform-related issues are putting off people. Also, any changes on the regulations front are highly unlikely at least in the next 12 months,” said Amit Kumar Gupta, Founder Fintrekk Capital, a SEBI-Registered Research Analyst.

Alternatives to crypto

According to experts, for high-risk investors, a way to lower risk may be to look at investing in US-listed bitcoin-based spot exchange-traded funds (ETFs), a way to invest in crypto assets without actually buying the coin itself.

“We do not suggest direct investment into cryptocurrencies. Rather, people who have a high-risk profile may have a small portion - 1 to 2 percent - of their overall portfolio in a spot Bitcoin ETF in the US through the LRS (Liberalised Remittance Scheme). There are 11 companies that offer such ETFs. So the advantage of the ETF is that it is backed by a big fund house, whether it is BlackRock, Grayscale, Fidelity or Franklin Templeton,” said Suresh Sadagopan, Managing Director and Principal Officer, Ladder7 Wealth Planners.

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Spot Bitcoin ETFs are financial instruments that track Bitcoin’s price by holding the actual cryptocurrency in reserve and backing each share of the ETF with real Bitcoin.

Investing in spot bitcoin ETFs has taxation advantages compared to investing via domestic crypto exchanges. However, there may be additional costs in the form of 20 percent TCS under LRS and other transactional fees.