United States President Donald Trump’s recent announcement of a US crypto strategic reserve has sent shockwaves through the financial markets, sparking a surge in trading volumes while reigniting concerns over regulatory uncertainty and market volatility.
Market Reaction and Institutional Interest
On 2 March 2025, Trump revealed plans for a national reserve comprising Bitcoin, Ethereum, XRP, Solana, and Cardano. The move is being widely viewed as a major step toward legitimising cryptocurrencies, potentially triggering a sustained bull run.
The announcement resulted in a sharp increase in crypto trading activity, with market inflows reaching nearly $300 billion overnight. “Such legitimisation of cryptos by the US government could drive mainstream adoption and increase institutional participation,” said Balaji Srihari, vice president at Coinswitch. He noted that the establishment of a US strategic reserve could lead to a global accumulation race.
Bitcoin and Ethereum are expected to maintain their dominant market positions due to their security, institutional backing, and early adoption. “The inclusion of XRP, Solana, and Cardano in the US reserve could significantly boost their adoption,” said Raj Karkara, chief operating officer at Zebpay.
However, sustaining this momentum will depend on multiple factors, including policy support, market sentiment, economic conditions, and effective execution.
The rise of Bitcoin exchange-traded funds (ETFs) has played a crucial role in driving institutional investments. “US spot Bitcoin ETFs have driven massive institutional inflows,” Karkara added. Traditional financial institutions are also beginning to embrace digital assets, with BlackRock, the world’s largest asset manager, now recommending cryptocurrencies as part of its model portfolio.
Assessing the Risks
Despite the growing enthusiasm, experts warn that investors should be cautious about increasing their exposure to cryptocurrencies due to inherent risks.
Market Volatility: Cryptocurrencies are highly volatile, with price fluctuations driven by limited market depth, speculation, and sentiment-based trading. “Only investors with a high risk tolerance should consider investing,” said Abhishek Kumar, a Securities and Exchange Board of India (SEBI) registered investment advisor and founder of Sahajmoney.
Regulatory Uncertainty: The regulatory landscape remains uncertain in several countries, including India. “The key risk arises from the possibility of prohibition through pending legislation. Conflicting oversight from multiple regulators, such as the Reserve Bank of India and SEBI, further adds to the uncertainty,” Kumar added.
Regulatory Gaps: Cryptocurrencies operate outside the frameworks designed for traditional financial institutions, creating gaps that may allow misleading practices and security vulnerabilities to thrive. Unlike traditional financial assets, cryptocurrencies lack consumer protections such as deposit insurance and circuit breakers.
Liquidity Risk: Regulatory shifts or market downturns could impact liquidity, making it difficult for investors to buy or sell assets at desired prices.
Kumar advises retail investors to limit crypto exposure to 1-5% of their portfolios and maintain a long-term investment horizon of at least five years. Srihari also warns against excessive leverage, which can amplify losses.
Security Measures and Exchange Selection
Given the increasing risks of cyber threats, investors must prioritise security when choosing crypto exchanges. “Look for an exchange with a strong track record of security and minimal breaches,” advised Prashant Mali, a cyber law expert and advocate at the Bombay High Court.
Key security features to look for include multifactor authentication, cold storage for funds, and independent security audits. Exchanges with stringent know-your-customer (KYC) policies and insurance coverage for hacking-related losses offer additional protection.
Tax Implications and Compliance
Profits from cryptocurrency transactions in India are taxed at a flat rate of 30%, with an additional surcharge and education cess. “Only acquisition costs can be deducted, while transaction fees and transfer costs cannot be deducted when computing taxable gains,” said Suresh Surana, a Mumbai-based chartered accountant.
A tax deducted at source (TDS) of 1% applies to crypto transactions, except in specific cases. Additionally, crypto losses cannot be offset against other forms of income or carried forward to future financial years.
Tax treatment depends on transaction patterns. “If transactions are infrequent and cryptos are held for the long term, gains generally qualify as capital gains,” explained Surana. However, frequent trading, mining, or arbitrage activities result in gains being classified as business income.
Investors must disclose crypto gains and holdings in their income-tax returns (ITRs) under ‘Schedule VDA (Virtual Digital Assets)’. Those holding cryptos on foreign exchanges must report them under the Foreign Asset Schedule in their ITR. Individuals with an annual income exceeding ₹50 lakh and holding VDAs for non-business purposes must disclose their holdings under ‘Schedule AL (Assets and Liabilities)’.
Navigating the Future
Trump’s crypto reserve proposal has reignited global discussions about the role of digital assets in mainstream finance. While the initiative has provided a boost to the crypto market, regulatory uncertainties remain a key concern. Investors must tread carefully, balancing potential gains with the risks posed by market volatility and evolving policies.
