The US regulator has approved exchange-traded funds (ETFs) that invest directly in Bitcoin, a landmark movement in the US financial market. Securities and Exchange Commission (SEC), took a U-turn from its decade-long position that Bitcoin ETFs could be easily manipulated. However, two SEC commissioners expressed dissent on the decision saying these products will flood the markets and may drain the retirement savings of several US households. In anticipation of the move, the Bitcoin had soared more than 70 per cent in recent months and since the announcement rose 4 per cent at USD 47,310.
An ETF is an easy way to invest in one asset or a group of assets without having to directly buy the assets themselves. For example, a Gold ETF allows anyone to invest in gold without having to find a place to store a bar or protect it.
ETFs can also be easily traded on stock exchanges.
Typically anyone who wants to buy a crypto has to open a digital wallet or open an account at any crypto trading platform.
Now the recent move is expected to broaden access to this crypto as institutional and retail investors don't have to have a wallet to hold the world's largest cryptocurrency but gain exposure to it without directly holding it. When ETF trading starts, shares of ETFs that hold Bitcoin will be available for US investors without a brokerage account.
The decision notably is different from the earlier order that allowed Bitcoin futures ETF which hold derivatives contact tied to Bitcoin. Now SEC has allowed spot ETFs that hold Bitcoin itself.
The US SEC approved 11 applications, including from BlackRock, Ark Investments/21Shares, Fidelity, Invesco, and VanEck, among others, according to a notice on its website. Some products are expected to begin trading on January 14, 2023.
Currently, speculation that ETFs will be created around Etherium, the second-most popular cryptocurrency, has started driving up its price.
Viram Shah, CEO, of Vested Finance- An alternative asset investment platform, said, “For the Indian investor, this becomes an interesting way to add Bitcoin to their portfolio via the LRS route. ETF issuers, the likes of Fidelity, BlackRock, ARK and 7 others have filed for their own Bitcoin ETF. Indian investors now have easy Bitcoin exposure via regulated entities and don't have to worry about storage. Moreover, 1 per cent TDS on transactions don't apply as they are not holding assets directly. Capital gains tax is also lower."
“However, 20 per cent TCS is applicable above Rs 7 lakh for LRS. Unlike TDS, the TCS can offset other tax liabilities but liquidity can get stuck. ETF also comes with its management fees. Blackrock said they would charge 0.3 per cent, while ARK disclosed 0.25 per cent charges”, Shah added.