Year-ender|Bitcoin Touches New Heights in 2024: Will the Momentum Stay?

February 2021. Perhaps, the most interesting month in cryptocurrency's history. Bitcoin had well-surpassed the $50k price mark and other crypto-coins seemed to mimic the trajectory. Of course, not the speed at which Bitcoin had soared but definitely more than what netizens had expected. Elon Musk's darling cryptocurrency, Dogecoin, initially started off as a meme coin, also skyrocketed as tweets became the new fundamentals driving the price levels.

For netizens around the world, the mood was never so 'gung-ho' about money that neither folded nor jiggled. Fast forward to now, after nearly 2 years of subdued pricing, Bitcoin witnessed a strong bounce back again as the price of the cryptocurrency surpassed the $1,00,000 price mark. And the digital sphere is already expecting a further upside of nearly 50 per cent.

But historically, every peak in Bitcoin’s price journey was followed by a major crash. From the Terra Luna collapse, which erased nearly $45 billion in investor wealth, to the dramatic downfall of the 'Crypto King,' aka Sam Bankman-Fried, after the FTX bankruptcy scandal.

Quite evidently, each high point in the cryptocurrency market has been met with a steep decline. And Bitcoin, as the dominant cryptocurrency, has, more often than not, been hit the hardest. For instance, when the world's 3rd largest cryptocurrency, Terra crashed, it took less than 2 months for Bitcoin's price to decline by over 50 per cent.

But coming back to the present, a series of events signal that this time the trajectory might play the otherwise.

Is the currency getting a 'Legit' backing?

From Trump to Putin, a large part of the rally witnessed by Bitcoin during the past few months was owing to the comments of major political figures showing their inclination towards the digital currency. While Trump made a sharp U-turn this year from his earlier stance, for investors the most unexpected thing happened when Putin signaled his slight support for cryptocurrencies.

"For example, bitcoin, who can prohibit it? No one."

Putin said during a plenary meeting while talking about Dollar's dominance as the global reserve currency and pointed out the fiat's vulnerability to political confiscations.

Plus, just last month, Russia introduced a new regulatory framework for crypto mining, bringing the digital currency under legalised view.

In the West, Trump nominated Paul Atkins to chair the SEC (Securities and Exchange Commission). Unlike the outgoing chairman Gary Gensler, Atkins is known for his pro-crypto stance. Infact, his nomination was one of the many reasons that pushed Bitcoin to touch the record $1,00,000 price mark last week.

Meanwhile, El Salvador, a central-American country has already made Bitcoin a legal tender to tackle out its debt problems—though this wasn’t the sole factor driving its adoption of the digital currency.

On the East side, Bhutan has been making headlines for its crypto holdings. The tiny Himalayan nation's government owns Bitcoin worth over a billion dollars even after selling a significant portion of its holdings earlier. This makes Bhutan among the top countries owning the highest number of Bitcoin, only after the US, China, UK and Ukraine.

Beyond robust adoption, a major uptrend in pricing also came after Bitcoin ETFs (Exchange-traded funds) started garnering heightened attention. "With the market cap hitting over $3.6 trillion, the crypto market saw remarkable growth in 2024. The rally started with ETF inflows in January, continuing till the recent peak with Bitcoin hitting the $100k milestone," Edul Patel, co-founder and CEO of Mudrex.

According to a Bloomberg report, nearly $10 billion has flowed into US ETFs directly investing in Bitcoin since Donald Trump won the presidential election. Even earlier this year, the SEC gave its approval for the first Spot Bitcoin ETF.

Unlike traditional Bitcoin ETFs that invest in futures contracts, a Spot Bitcoin ETF directly invests in the cryptocurrency at its actual market price.

"In the US, Trump’s pro-crypto stance and Senator Lummis’s Bitcoin reserve proposal have paved the way for significant advancements. Europe experienced a shift in sentiment, with Poland and Italy revisiting their heavy crypto tax policies and the EU making progress on its MiCA (Markets in Crypto-Assets) regulations; even China showed signs of a softened approach," said Balaji Srihari, Vice President, CoinSwitch.

"As we step into 2025, we hope this momentum continues," he further added.

While the adoption graph continues to rise, the regulatory picture of Bitcoin remains somewhat in uncertainty at home. Besides imposing a flat 30 per cent tax on the currency, a TDS (Tax deducted at source) of 1 per cent is also deducted, making it one of the toughest places to cash in on crypto gains. India has one of the highest tax slabs when it comes to cryptocurrency.

But that hasn’t stopped India from diving into Bitcoin. In fact, while the policy view might seem strict, the overall outlook signals a completely different picture.

Is India saying 'Yay' or 'Nay' to Bitcoin?

When the Finance Ministry of India initially introduced the taxation slab for cryptocurrencies in 2022, the industry had a mixed reaction. The mood was largely optimistic as many thought that the imposition of taxes would soon bring-in more policy views catering towards cryptocurrency. But others viewed the double-digit tax figure as a major dampener.

As of now, the uncertain picture has little changed. But for crypto-lovers, the enthusiasm still remains sky-high. As per a blockchain data platform, India secured the top spot in the 2024 Global Crypto Adoption Index.

Even with high taxes, India saw about $250 billion worth of crypto transactions between July 2022 and June 2023, making it the second-largest market after the US. So, while the domestic regulatory play might not be so favourable for Bitcoin, the actions of retail holders and institutional investors have an altogether different story to tell. Earlier this year, former RBI governor, Shaktikanta Das even compared crypto with the Dutch tulip mania, often known as the most famous market bubbles.

But even after high taxes and a hardened policy view, the industry players in the VDA (Virtual digital asset) space keep an optimistic tone.

Patel believes that the current momentum in cryptocurrency is set to continue in 2025 as major nations make massive investments in the space. "Institutional interest is also increasing, with projects like Solana preparing to launch ETFs. Ahead of Trump assuming office starting next year, there would be better regulatory clarity emerging and as momentum builds towards establishing the Bitcoin reserve, the crypto market is bound to grow with Bitcoin expected to touch $150,000 in the next few months," he added.

This year, Bitcoin’s surge has outpaced the returns of many financial assets, be it commodities or equities. The domestic benchmark index, BSE Sensex has posted a modest 13 per cent return year-to-date, while gold has surged by more than 25 per cent, though it has given back some of those gains in recent weeks.

Bitcoin, on the other hand, delivered more returns in just November month alone. On year-to-date basis, the cryptocurrency has surged by over 130 per cent.

While it's impossible to overlook the crashes Bitcoin has faced after every peak, the focus is now less on price play and more on whether cryptocurrency will gain the same regulatory ground as traditional currencies.