The approval of spot Bitcoin exchange traded funds (ETFs) by the United Securities Exchange Commission (SEC) has led industry to go gung-ho on the virtual digital asset class. Despite the approval in the US, Indian exchanges and investors see a ray of hope after a dreadful period for the crypto industry.

While Indian are looking explore investment opportunities in crypto assets overseas, homegrown exchanges believe that the renewed confidence is likely to pump institutional money in the crypto assets, with some improved sentiments in India among all stakeholders.

US SEC, the regulatory body overseeing the US capital markets, granted approval for 11 spot Bitcoin ETFs, including offerings from prominent financial institutions such as BlackRock, Vanguard, Franklin Templeton, Valkyrie, Fidelity, and Invesco on January 10.

On an industry level, the implications are profound, promising long-term benefits that drive mass adoption, said Sumit Gupta, Co-Founder at CoinDCX. “The approval opens doors for retail investors, simplifying their access to Bitcoin transactions through traditional brokerage accounts,” he said.

Given that crypto is borderless, the SEC’s ETF approval will impact overall market sentimentsJaipur Stock. This decision is set to trigger heightened trading activity, leading to a significant surge in trading volume, said Gupta. “The positive momentum is anticipated to extend beyond Bitcoin to other tokens, he added.

Institutional money is expected to play a substantial role, with leading institutions, including hedge funds, sovereign wealth funds, and registered investment advisors, likely to be pivotal in propelling the unprecedented growth of ETFs, said the industry players.

Parth Chaturvedi, Investments Lead, CoinSwitch Ventures believes that the approval of Bitcoin ETF is a major positive in the long term as it marks the beginning of easy access for institutional capital to be deployed into the space. “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 said.

However, he said that Indian investors will have limited opportunities to invest in Bitcoin ETFs due to their presence in foreign jurisdictions as of now. “This implies that any investment by Indians will be governed by the Liberalised Remittance Scheme (LRS),” he added.

Market experts said that the tax collected at source (TCS) will be an additional complexity in making an investment via this route, other than the capital constraints under LRS, which currently allows an investment of $2,50,000 per financial year.

On the flip side, the 20 per cent tax collected at source (TCS) implemented in 2023 will apply to deposits exceeding Rs 7 lakhs through the LRS. Unlike tax deducted at source (TDS), it has the benefit of offsetting other tax liabilities, but it could potentially tie up liquidity. Moreover, there is an additional cost in the form of management fees for the ETFs.

The recent green light from the US SEC for Bitcoin ETFs signifies a crucial step towards granting legitimacy to an asset that has long been poised on the sidelines, said Avinash Shekhar, Chief Executive Officer, Pi42, an Indian Crypto-INR perpetual futures exchange. He said that with the influx of institutional capital, one can expect improved price stability and broader adoption of Bitcoin.

“The approval of Bitcoin ETFs in the US marks a pivotal moment for the cryptocurrency landscape. This decision not only signifies a significant stride towards global acceptance but also opens doors for the potential launch of similar ETFs in traditional financial markets, including India,” he added.

With spot ETFs for Bitcoin, it will cement its position as a new asset class.  For investors interested in BTC, a primary evaluation could be that instead of equities, it should be compared to digital Gold, said Chaturvedi from CoinSwitchPune Wealth Management. “BTC is a scarce asset, whose supply schedule is fixed and decreases with time”

India has been one of the largest markets for investments in digital assets despite all the challenges in terms of regulatory strictness, taxations and prolonged crypto winter. However, Market participants are hopeful that the move will also facilitate more discussions in the Indian ecosystem to have a local crypto ETF in days to come.

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 other opinion

On the contrary, market participants believe that Bitcoin ETFs may not make sense for retail investors. Such instruments are usually opted by institutions for passive exposure. Spot Bitcoin ETFs are already operational in Europe, Canada, and Australia, but approval by the US SEC is being seen as a big game changer in the crypto space.

Market participants reiterated that India stands a chance to lead the global Web3 revolution, benefiting the economy and attracting investments for Web3 startups. Overall, it will help the entire ecosystem. However, the industry has turned optimistic after the approval and expecting some positive developments in terms of taxation in India.

A more crucial intervention is required in taxation, said Gupta from CoinDCX. “We, along with other crypto exchanges, have submitted requests to the government to reconsider the 1 per cent TDS, proposing a reduction to 0.01 per cent. We anticipate further adoption in the market, if the industry request is approved.”

New Delhi Investment