Wealthy Indians are seizing the opportunity to engage in the fervor surrounding spot-Bitcoin ETFs, utilizing their annual remittance allowances. This trend persists despite repeated cautionary statements from the country’s central bank likening crypto investing to the speculative bubble of tulip mania.
Through the Reserve Bank of India‘s Liberalised Remittance Scheme, which permits citizens to remit up to $250,000 each financial year, Indians are actively trading the exchange-traded funds introduced in January.
Data from Vested Finance, a domestic platform enabling Indians to invest in overseas securities, sheds light on the local demand for these ETFs. Thus far, it has recorded over $5.3 million in Bitcoin ETF trading volumes, with 67% comprising buy orders.
According to Viram Shah, CEO at Vested, approximately 70% of ETF traders are affluent, high-net-worth individuals. The appeal lies partly in the tax advantages offered through the LRS.
In 2022, the Indian government implemented a new tax regime imposing a 30% tax on crypto asset income, along with a 1% levy known as Tax Deducted at Source. This prompted many Indian crypto traders to turn to offshore platforms. However, purchasing Bitcoin ETFs through the LRS presents a more cost-effective alternative.
Shah explains, “For long-term holders, the taxation can be reduced to below 20% on capital gains unlike the flat 30% and 1% TDS applicable when investing directly through crypto platforms.”
Mudrex, a Y Combinator-backed crypto asset management platform, has begun offering spot ETFs to its customers in collaboration with Vested. Edul Patel, CEO at Mudrex, notes that Indian family offices are also embracing the LRS route.
“Investment in Bitcoin ETFs via the LRS is a tax-compliant and better-understood approach which is making family offices take some exposure in this space,” Patel told Bloomberg.
Despite these indicators of early demand, the Indian central bank continues to issue warnings regarding cryptocurrencies. RBI governor Shaktikanta Das reaffirmed the bank’s stance on cryptocurrencies, likening the enthusiasm to tulip mania during a public forum on Jan. 11.
“I don’t think the world, in particular the emerging economies can afford crypto mania, which will lead to similar outcomes,” Das cautioned.
Meanwhile, data compiled by Bloomberg indicates that the 11 Bitcoin ETFs in the US have amassed net inflows exceeding $12 billion since their launch.
