Editorial: Crypto minefield

This month, US President-elect Donald Trump announced that he intends to nominate cryptocurrency advocate Paul Atkins to chair the Securities and Exchange Commission (SEC). Trump championed Atkins, emphasising that he “recognises that digital assets and other innovations are crucial to Making America Greater.” The SEC, which oversees US securities markets and investments, is currently led by Gary Gensler, who has been at the forefront of the government’s crackdown on the crypto industry. Following the SEC appointment, Trump named venture capitalist David Sacks, a friend of Elon Musk as the White House's AI and Crypto Czar.

The former president was once a crypto skeptic. Now, he has pledged to make the US “the crypto capital of the planet” and create a “strategic reserve” of Bitcoin. His campaign accepted donations in cryptocurrency and he even courted fans at a Bitcoin conference in July. Last August, Public Citizen, a consumer rights advocacy nonprofit, reported that crypto-sector corporations spent in excess of $119 million in 2024 to back pro-crypto candidates across federal elections.

Trump himself has launched World Liberty Financial, a new venture with family members to trade cryptocurrencies. He is also promoting decentralised finance, or DeFi, a mode of using public blockchain space to disrupt the traditional finance world. Crypto assets have been flush with cash ever since Trump's victory in the presidential elections. The value of Bitcoin, the largest cryptocurrency, had breached $100,000, while shares in crypto platform Coinbase had surged more than 70% since the election. Crypto industry players have backed Trump in the hopes that he would push through legislative and regulatory changes they’ve long lobbied for — increased legitimacy sans red tape.

Experts attributed the reignited fervour in crypto to the fact that dominant currencies in the developed world have lost some of their lustre over the past few years. At the BRICS summit this year, there were loud calls for the establishment of a new reserve currency backed by a basket of the respective currencies of member nations. Geopolitical tensions and economic instability from the war in Ukraine, as well as the Israel-Hamas-Lebanon conflict, have had a part to play in this as the US freeze on Russian dollar reserves had emboldened many crypto advocates.

Notwithstanding Trump's pledge of a post Christmas bonanza, Bitcoin might continue to ride troughs and crests for a while. This week, Bitcoin tumbled to $94,355, impacted by upcoming US inflation data. The crypto market also saw widespread declines, with Ethereum and other altcoins also plummeting.

While cryptocurrencies might be devoid of any apparent moorings right now, they might eventually get stable linkage to a basket of world currencies. The proof of the pudding will be in its eating, vis-a-vis the design, structure, and management of crypto as an asset class. Its evangelists as well as regulators are unable to chart a roadmap for the future in terms of its mass adoption. If the world seeks the emergence of a second currency to rival the dollar, the US might see to it that it's the Bitcoin.

Now, as far as India is concerned, the government has neither banned nor accepted crypto; instead it has chosen to bury its head in the ground by imposing crippling restrictions and discouraging banks from selling or buying crypto. Going by the global tailwinds, India needs to finalise its crypto policy framework pronto, without waiting for a G20 consensus on developing a coordination mechanism among members, which might arrive too late, and deliver too little.