The United Securities Exchange Commission (SEC) has approved spot Bitcoin exchange traded funds (ETFs), causing the industry to go all-in on the virtual digital asset class. Despite the US clearance, Indian exchanges and investors see a light of hope following a bleak era for the cryptocurrency business.
While Indians are looking for investment opportunities in crypto assets abroad, domestic exchanges predict that restored confidence will likely pump institutional money into crypto assets, with some improved emotions across all stakeholders in India. On January 10, the US Securities and Exchange Commission (SEC), which oversees the US capital markets, approved 11 spot Bitcoin ETFs, including products from notable financial firms such as BlackRock, Vanguard, Franklin Templeton, Valkyrie, Fidelity, and Invesco.
According to Sumit Gupta, Co-Founder of CoinDCX, the ramifications are enormous on an industry level, providing long-term benefits that promote mainstream adoption. "The approval opens doors for retail investors, simplifying their access to Bitcoin transactions through traditional brokerage accounts," he added.
Since cryptocurrency has no borders, the SEC's ETF clearance will have an impact on broader market sentiment. This decision is expected to spark more trading activity, resulting in a large increase in trade volume, according to Gupta. "The positive momentum is expected to spill over into other tokens," he continued.
According to industry participants, institutional money will play a significant role, with key institutions such as hedge funds, sovereign wealth funds, and registered investment advisors likely to be important in pushing the extraordinary expansion of ETFs.
Parth Chaturvedi, Investments Lead at CoinSwitch Ventures, believes that the approval of a Bitcoin ETF is a significant long-term positive since it signifies the beginning of simple access for institutional capital to be poured into the industry. "In essence, the primary benefit of investing in any asset via ETFs is that the investor does not have to hold the underlying spot," he explained.
However, he stated that due to their current existence in foreign countries, Indian investors will have limited options to participate in Bitcoin ETFs. "This implies that any investment by Indians will be governed by the Liberalised Remittance Scheme (LRS)," he said.
Market experts believe that, in addition to the capital limits imposed by LRS, which presently enables an investment of $250,000 per fiscal year, the tax collected at source (TCS) will add complexity to making an investment through this method.
On the other hand, the 20% TCS applied in 2023 will apply to deposits exceeding Rs 7 lakhs made through the LRS. Unlike TDS, it has the advantage of offsetting other tax bills, but it may possibly tie up liquidity. Furthermore, the ETFs have an additional expense in the form of management fees.
According to Avinash Shekhar, Chief Executive Officer of Pi42, an Indian Crypto-INR perpetual futures market, the new green light from the US SEC for Bitcoin ETFs represents a critical step towards lending credibility to an asset that has long been on the sidelines. He predicted that with the influx of institutional capital, Bitcoin's price stability and adoption will improve.
"The approval of Bitcoin ETFs in the United States marks a watershed moment in the cryptocurrency landscape." This decision not only represents a big step towards worldwide recognition, but it also opens the door to the prospective launch of comparable ETFs in conventional financial markets, such as India," he noted.
With Bitcoin spot ETFs, it will solidify its place as a new asset class. According to Chaturvedi of CoinSwitch, a primary comparison for investors interested in BTC should be digital gold rather than equities. "BTC is a scarce asset, whose supply schedule is fixed and decreases with time"
Despite regulatory restrictions, taxation, and a lengthy crypto winter, India has been one of the largest markets for digital asset investments. However, market participants believe that the decision would encourage additional debates in the Indian ecosystem about the creation of a local crypto ETF in the coming days.
With the introduction of ETFs and optimism triggered, local exchanges might be eyeing a potential resurgence of investors, said Shekar from Pi42, who believes that more Indian investors will make the most of this decision and start including digital assets in their portfolio.
The Opposing Viewpoint
Market players, on the other hand, believe that Bitcoin ETFs may not be suitable for regular investors. Institutions typically use such tools for passive exposure. Spot Bitcoin ETFs are already available in Europe, Canada, and Australia, but clearance by the US Securities and Exchange Commission is considered as a game changer in the crypto market.
Market players highlighted that India has the potential to lead the global Web3 revolution, which would boost the economy and attract investments for Web3 businesses. Overall, it benefits the entire ecosystem. However, with the clearance, the industry has become more bullish, anticipating some favorable developments in terms of taxation in India.
According to Gupta of CoinDCX, a more decisive action in taxation is required. "We, along with other cryptocurrency exchanges, have asked the government to reconsider the 1% TDS, proposing a reduction to 0.01 percent." If the industry request is granted, we anticipate further market acceptance."
