While already being highly volatile, this year has seen an unprecedented amount of fluctuations in the Bitcon value and market capitalization. High on the bull run, it crossed the barely believable mark of 1,000 billion USD market cap a few months ago and then dipped. It is presently estimated at 602 billion USD (according to Statista, as of 21 July 2021). Is a Bitcoin ETF (exchange-traded funds) the logical next step in the evolution and acceptance of this virtual currency?

Being an unregulated and decentralized digital currency, the factors influencing these fluctuations are not always clear and transparent. Having said that, even among all this uncertainty Bitcoin has been an asset of choice for several wealthy individuals and firms who have surplus cash, a high risk-taking appetite, and a willingness to diversify their already diverse portfolios. With several coin exchanges opening up and allowing percentage level smaller investments, this trend has lately been picked up by a lot of tech-savvy millennials which has caused further wide spread trading and investing in crypto overall and Bitcoin more specifically.

Recent History

The call for a Bitcoin ETF was first raised almost 8 years ago under the erstwhile US administrations. But it was met with a rather cold stand towards Bitcoin and crypto in general. Since the agenda was to keep the US Dollar as the currency of choice for the world, all efforts and filings regarding an ETF were largely ignored.

However, the present US administration has raised hopes that regulators like the SEC might be warming up to this idea and maybe contemplating giving the green signal to a Bitcoin (BTC) ETF. If reports are to be believed, it may finally become a reality in the not so far away future. This anticipation has already been causing great excitement in the crypto ecosystem and caused a rise in several financial institutions offering products with exposure to cryptocurrencies. As per reports, there are currently almost a dozen Bitcoin ETF filings awaiting approval. However, it is not easy to resist the perceived allure and excitement that crypto has generated. Already there exists a Close Ended Fund (CEF) which acts as a tool via which people can invest in a trust, which then invests in increasing its Bitcoin holdings. While still fairly complex in nature, this is the workaround that has been devised for risk-accepting investors to gain Bitcoin exposure in the absence of an official ETF. The launch of an ETF is bound to make such funds and trusts redundant.

What Could Be the Perceived Impact

Earlier this year a BTC ETF was officially launched in Canada. One of the significant noticeable impacts was that the ETF value kept climbing steadily even while BTC was in decline. The biggest advantage an ETF is expected to provide to the investors is the ability to invest directly without the need for complex and unregulated coin exchanges. It will also require and thereby lead to a more structured crypto ecosystem, ideally leading to less volatility and more transparency. This in turn might sway the opinion of regulatory authorities across countries like India who have so far shown apathy towards the possibilities of blockchain and digital tokens. In fact the technology hubs in Asia, especially the ‘Asian Tigers’ countries like Singapore, South Korea, and Taiwan are already showing their eagerness in being incubators and formally adopting crypto and blockchain and making it easily traded thereby keeping it well regulated. Well, at least that seems to be the ambition.

The Indian Context

The Hon. Supreme Court of India recently revoked the ban on crypto trading which had been enforced by the RBI a couple of years ago. As a result, it has gained some amount of validation amongst investors however it is far from being completely legalized; let alone be regulated. The possibility of high rewards, albeit fraught with high risks, is making crypto an extremely lucrative proposition to the Indian millennials. This may also be attributed to a significant rise in tech-savviness of present India, a significant boost in network infrastructure, and global exposure. The foundation of blockchain being a peer-to-peer network is another alluring factor adding to its popularity. This has also led to the advent of several crypto/coin exchanges which act as the broker in assisting the investor buy and sell digital currency by taking a commission or service fees.

In Summation

If the US takes the path shown by the Canadian regulatory authority, a BTC ETF may become a reality in the not-so-distant future. Most people predict the advantages of an ETF will outweigh the perceived cons. It is expected to make crypto accessible to a far wider audience, make it more legitimate and widely accepted thereby leading to proper regulation and monitoring. This is expected to bring a marked stability to this highly volatile asset.

The arrival of an ETF is also expected to break down the myths and technological complexities currently surrounding crypto and the need for crypto wallets exchanges. This is primarily because an ETF will give you the benefits of the value of the Bitcoin based on the amount invested, without owning any quantity in actuality. You can draw a parallel with the concept of Gold ETFs in India, where you are provided the value of the gold based on your investment but do not own any physical gold.

Based on the available information and current context, while there has been a significant rise in Crypto Exchanges in India, an Indian BTC based ETF still seems a little further away than around the corner.