Spot bitcoin ETFs: Can Indian investors make hay while the sun shines?

Soon after spot bitcoin ETF was approved by the US markets regulator Securities and Exchange Commission (SEC), there has been a surge in the bitcoin price, which had hit $49,000 soon after. The bitcoin on Tuesday was trading 1 percent higher at $42,837. 

Several industry spokespersons representing Indian crypto exchanges have given a thumbs-up to the move. 

“The introduction of a Bitcoin ETF is — undoubtedly — an encouraging factor, contributing to the growing belief in this asset class. Given that crypto is borderless, the SEC’s ETF approval will impact overall market sentiments. In the immediate term, the focus is on Bitcoin's price, which has surged over 60% since early October,” said Sumit Gupta, Co-founder, CoinDCX.

Participation in foreign stock and ETF markets by Indian investors is regulated by the Reserve Bank of India's Liberalised Remittance Scheme (LRS). Under this scheme, investors from India can allocate up to $250,000 for investments, including in US ETFs.

However, despite the encouraging words, Indian investors have much more to consider amid repeated words of caution given by the Reserve Bank of India (RBI) governor Shaktikanta Das and Finance Minister Nirmala Sitharaman in the recent past.

So, investors continue to grapple with the question as to whether one should invest in this cryptocurrency or not? There are numerous reasons for intending to invest in bitcoins.

Reasons investors in India can consider investing in bitcoins:

1. The cryptocurrency is borderless and the decisions taken by the US regulator will see their impact on the prices, acceptability and cash inflows around the world. 

2. When the price starts moving upward, a number of investors will be incentivised to earn quick bucks in the short term trading by selling the rallies. 

3. Although cryptocurrencies are yet not legal in India via any explicit set of regulations, they are not illegal either. The government even rolled out 1 percent TDS and capital gains tax on virtual digital currencies (VDAs) in 2022, thus setting the tone of legitimacy and regulatory framework.

4. India investors can invest in bitcoin ETFs via Liberalised Remittance Scheme (LRS).

Nevertheless, the jury is still out on this when it comes to making hay while the sun shines on cryptocurrencies.

Reasons Indian investors may not want to invest in bitcoins:

1. The approval of spot ETF was given by the US market regulator SEC, and it obviously does not apply to Indian crypto exchanges. Although Indian investors can invest via LRS, not everyone would want to take that path.

2. By their very nature, cryptocurrencies are highly volatile. And so are bitcoins. They fluctuate wildly and touched $68,789 in November 2021. 

3. They are yet not regulated in India and the overall sentiment for their regulations is not positive. RBI Governor Shaktikanta Das has issued statements condemning the mania of bitcoins. 

No wonder then some experts continue to bat for regulatory clarity over bitcoins before going ahead with investing into them.

“It may be prudent to await clear regulatory developments before considering investments in cryptocurrencies. The launch of a Bitcoin ETF was anticipated to inject billions into the crypto economy, but instead, we've witnessed a trend of investors liquidating their holdings, causing prices to hover around $47,000, far from the peak price of $60,000. It is recommended to prioritise regulatory clarity over Wall Street events, as the latter may not fully capture the essence of decentralised Bitcoin,” says Gaurav Mehta, CEO and co-founder of Catax – Simple Crypto Taxes.