Vipul Mishra
What happened in the US crypto market and how did the SEC approve the ETF? Overall how many crypto ETFs are we talking about now?
Gaurav Dahake: This approval came about on January 10, 2024. Over 10 ETFs have been approved and many more have filed, which eventually might get approved. The first Bitcoin spot ETF was filed in 2013 by Grayscale and it was not approved citing certain reasons by SEC and over time, SEC kept rejecting Bitcoin ETFs. Then there was a court ruling in 2023 September, which basically mandated the SEC that by 10th of January, you have to take a call and you have to give a decision on the spot ETF. If you do not have any concrete reason to reject it, you will have to approve the ETFs. So, that is how it came into being, the largest asset managers in the world. So, the likes of Fidelity, BlackRock and others have already created the ETFs. And in the last four days since it has gone live, over $10 billion worth of trades in the ETFs have already happened.
Now, just to put that into context, the entire ETFs that have been launched in the US in 2023, their overall trade volume has been just say half a billion dollars a month versus Bitcoin ETFs that have traded like up to $10 billion in that short of a time span. It has only been four days since it has been live. Overall, the appetite is pretty strong. And there is a lot of interest that is out there from individuals as well as institutions to take exposure into this.
A spoiler also coming in from the governor who said the party does not mean it will be extended in India and for Indian crypto investors also. So, how can Indian crypto investors look at these ETFs now? Explain to us how big an advantage it is from a tax angle?
Gaurav Dahake: There are two ways totake exposure into Bitcoin. You can essentially buy it from any exchange in India by depositing your INR and buying those tokens. Ultimately, you can also take the LRS route. LRS is a Liberalised Remittance Scheme, where you can send up to $250,000 in a year and buy assets, which is where you can send this money to a US brokerage account, which would credit that money into your US brokerage account and then you can take an exposure to the ETF. So, certain apps facilitate that.
But in that case, you will typically have an exposure in the form of TCS. So, any movement of money that you are doing above 7 lakhs, you will have a 20% TCS on top of that, which is applicable on foreign remittances. So, that is one of the challenges that is out there. At the same time, the positive is that you will have your assets stored with a financial institution, which is reputable and standing for the last few decades. But the TCS angle is the negative on the taxation side vis-à-vis if you trade it in Indian destinations, in Indian exchanges, you do not have any TCS angle. You basically send it to an Indian bank account through which that is credited. But then you have the tax component of TDS, which is 1% when you sell it. And the profits that you have made, you will have to pay a 30% tax on the profits when you realize it.
Now talking about investing in ETF and crypto ETF, does it mean that the same way we look at ETF in equity, it is the same kind of way that we are talking about in crypto as well, in terms of value and in terms of investment process, also the kind of benefits investor looks for in an equity ETF. Is it the same kind of benefit we are talking about in crypto ETF as well?
Gaurav Dahake: Crypto ETFs are only in the US currently. They are not in India. So, Indian investors cannot get an exposure to an ETF by using an Indian fintech app to take that exposure. They will have to remit money to a brokerage account outside of India to take exposure into the ETF. Vis-a-vis, directly spot Bitcoin exposure, like you can have an exposure to Bitcoin buying or selling through exchanges that are centred in India.
Spot, like Bitcoin ETF, if you want to take an exposure, as long as that does not directly come in India through any financial institution, users currently would need to send money abroad for that and that sending money abroad is where the LRS rule and the TCS component come in.
Looking at this one more option where investors who were running away or maybe discouraged because of the tax on crypto might just want to try their hands in crypto ETF, what will be your recommendation? Should one actually be going for it? How can they look at it? Because there is a lot of bust, there is a lot of excitement and a lot of reports saying that now we might just see people coming back to Bitcoin or through Bitcoin ETF only, maybe.
Gaurav Dahake: The way to think of an investment thesis around Bitcoin is if things go wrong, that is an alternate asset class or a monetary network which would still be functioning. As you see a lot of conflicts that are happening globally, such as Russia, Ukraine, China, Taiwan, or say Israel, Iran, Pakistan, and a lot of these nations are fighting amongst each other.
Bitcoin is basically a play around if things go wrong, you have an alternative mechanism in terms of monetary transfer or things. Even if that does not happen and frankly that should not happen, Bitcoin still serves as an asset class which is accessible for everyone in 200 different countries in the world. Individuals and institutions looking at one underlying asset in a particular asset class of cryptocurrencies which is why there is a lot of momentum and the supply on Bitcoins is capped.
So, only limited Bitcoins eventually would be out there. Taking all this into context, people can allocate a small portion of their portfolio, so a small portion is where sub-10% you can start evaluating and you can start taking exposure in a systematic form factor, like investing Rs 5,000 or Rs 10,000 on a monthly basis and then slowly accumulating assets that way. You can take it by buying it through exchanges in India or you can take the LRS route and take an exposure through a Bitcoin ETF.
The benefit with the ETF exposure is that you have a TCS component which is lower than the realised profits that you will have but at the same time there is a cap in terms of how much you can invest and what is the value that you can take exposure on. On the other hand, you can take exposure. So, if you are sending Rs 100 for a Bitcoin ETF to a brokerage account in the US, you will have Rs 80 because of the 20% TCS component. With that, you will be investing. Versus in Indian exchange, if you are investing Rs 100, you will have Rs 100 in your account. But the tax component post that is higher at 30% in terms of the profits realised.
Apart from Bitcoin, let’s also look at other tokens where ETFs may come up?
Gaurav Dahake: There is a lot of speculation around Ethereum. So, Ethereum is the second largest market cap asset in crypto and now, there is already a lot of talks in terms of some of these institutions also filing ETFs around Ethereum. If an investor has to look at it, ETF is the next beta play. Bitcoin went up significantly from about $15,000 by the end of 2022 to about $40,000 plus by the end of 2023 because of the speculation around that and now that speculation has shifted gears and it is now happening more around Ethereum because Bitcoin ETFs are already live now.
What is the new high for Bitcoin according to you? Can anyone actually predict that?
Gaurav Dahake: Difficult to predict but based on the money flow if you see, as I mentioned in the last four days in which ETFs have been operational, more than $600 million worth of new money has come in to purchase Bitcoins through the form of ETFs and at that rate which is like over $150 million a day, the money flow that is coming in and the circulation of Bitcoin that happens, so every 10 minutes there are about 6.25 Bitcoins that get generated or mined.
Source: The Economic Times