SEC Approves Bitcoin ETFs: Unveiling New Investment Avenues for Indian Investors

The US Securities and Exchange Commission (SEC) has approved the first batch of exchange-traded funds (ETFs) based on Bitcoin to be listed in the US. This move not only gives US investors easier access but also stronger and regulated crypto market. But what does it mean for Indian crypto investors? Here are some key points to know.

Benefits of Bitcoin ETFs

A Bitcoin ETF is a fund that tracks the price of Bitcoin and can be traded on a stock exchange like any other ETF. This means that investors can buy and sell Bitcoin without having to deal with the challenges of setting up wallets, accounts, or security measures that are required for holding crypto assets directly.

Bitcoin ETFs also offer taxation benefits for Indian investors, as they are not subject to the 30% tax on income from cryptocurrencies and the 1% tax deducted at source (TDS) on all crypto transactions that are imposed by the Indian government. Instead, they are subject to the capital gains tax that applies to any other foreign investment, which is lower and can be offset by other tax liabilities.

Moreover, Bitcoin ETFs can bring more stability and liquidity to the crypto market, as they attract institutional investors who have more capital and risk appetite than retail investors. This can reduce the volatility and manipulation of Bitcoin prices, as well as increase the adoption and awareness of crypto assets among the mainstream public.

Challenges of Bitcoin ETFs

However, Bitcoin ETFs also come with some challenges and limitations for Indian investors. First of all, they are not available in India yet, so investors have to use the Liberalised Remittance Scheme (LRS) to invest in them abroad. The LRS allows Indian residents to remit up to $250,000 per financial year for any permissible current or capital account transaction or a combination of both.

Secondly, investing in Bitcoin ETFs through LRS involves a 20% tax collected at source (TCS) on deposits above Rs 7 lakh, which was introduced in 2023. This means that investors have to pay an upfront tax on their investment, which can reduce their liquidity and returns. The TCS can be used to offset other tax liabilities, but it may take time and paperwork to claim it back.

Thirdly, investing in Bitcoin ETFs does not give investors the full exposure and control over their crypto assets, as they are dependent on the performance and management of the fund provider. For instance, if the fund provider faces any technical or operational issues, such as hacking or fraud, it may affect the value and security of the ETF. Also, investors cannot use their Bitcoin ETFs for other purposes, such as lending, staking, or spending, that are possible with direct ownership of crypto assets.

Future prospects of Bitcoin ETFs

The approval of Bitcoin ETFs by the US SEC is a milestone for the global crypto industry, as it signals a shift from being a niche and unregulated market to a mainstream and regulated one. It also paves the way for similar products in other traditional financial markets around the world, including India.

Indian crypto firms have welcomed the US SEC’s decision and expressed hope that it will create domestic support for the digital assets. They have also urged the Indian government and regulators to adopt a positive and progressive approach towards crypto regulation, rather than banning or restricting them.

The Indian government is expected to introduce a bill on crypto regulation in the upcoming budget session of Parliament, which will define the legal status and framework for crypto assets in India. The bill is likely to be based on the recommendations of an inter-ministerial committee (IMC) that was formed in 2019 to study the issues related to crypto assets.

The IMC had proposed a ban on all private cryptocurrencies in India, except for those issued by the state. However, since then, the crypto industry has grown significantly in India, with over 10 crore users and over Rs 6 lakh crore worth of transactions, according to industry estimates. The industry has also made several representations to the government and regulators, highlighting the potential benefits and risks of crypto assets, as well as suggesting best practices and standards for their regulation.

Therefore, it remains to be seen how the Indian government will balance the interests and concerns of various stakeholders, such as investors, traders, exchanges, startups, banks, regulators, and policymakers, while framing its policy on crypto assets. The approval of Bitcoin ETFs by the US SEC may provide some guidance and inspiration for India’s crypto future.