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Alternative tax-friendly way to invest in crypto assets

Budget 2022 brought in a double whammy for Indian crypto investors. Since April 1, there is a 30% tax on your crypto profits (which cannot be used to offset losses from other crypto transactions). Plus, starting July 1, a TDS of 1% will be levied on every transaction. 

However, did you know that you can indirectly invest in crypto in a tax efficient manner through the US markets? Through Grayscale, investors can get exposure to digital currencies via traditional equities and save on tax. 

What is Grayscale?

Grayscale, one of the largest digital currency asset managers, with $40 billion assets under management (AUM), helps investors access the ever-evolving digital economy. It offers a basket of products through which you can get exposure to digital currencies like Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Ethereum Classic and others. However, it is important to note that Grayscale products are over the counter (OTC) products. Hence they are not listed on a stock exchange but on OTCQX, a marketplace where OTC stocks provided and operated by the OTC Markets Group are traded. 

Zebpay, in partnership with Vested, gives you the option to invest indirectly in crypto through Grayscale securities. To invest in these, you need to be a Vested Premium subscriber. Let us take a brief look at the different Grayscale products on offer. 

Grayscale Bitcoin Trust (GBTC):

The largest publicly traded Bitcoin fund in the world,  it solely and passively invests in Bitcoin (BTC) and derives the value from the price of BTC. The shares (based on Bitcoin per share), track the BTC market price less fees and expenses. The GBTC is the most popular among Grayscale securities and had assets under management (AUM) of $24.9 billion as of April 27, 2022. 

Grayscale Ethereum Trust (ETHE):

This security solely and passively invests in Ethereum (ETH) and derives its value from the price of ETH. The shares (based on Ethereum per share) track the ETH market price with fewer fees and expenses. As of April 27, 2022, it had $8.8 billion as AUM. 

Grayscale Litecoin Trust (LTCN):

This security solely and passively invests in Litecoin (LTC) and derives the value from the price of LTC. The shares (based on LTC per share) track the LTC market price, less fees and expenses. It had an AUM of $154.6 million as of April 27 2022. 

Grayscale Ethereum Classic Trust (ETCG):

The ETCG solely and passively invests in Ethereum Classic (ETC) and derives its value from the price of ETC. The shares (based on ETC per share) track the ETC market price, less fees and expenses. As on April 27, 2022, it had an AUM of $371.2 million. 

Grayscale Bitcoin Cash Trust (BCHG):

The BCGH is solely and passively invested in Bitcoin Cash (BCH) and derives its value from the price of BCH. The shares (based on BCH per share) track the market price of BCH less fees and expenses. It had assets under management of $95.4 million as of 27 April, 2022. 

Refer to the figure below to get an understanding of how the above Grayscale trusts have performed in comparison to the respective crypto it tracks.

Source: Yahoo! Finance

Grayscale Digital Large Cap Fund: (GDLC):

You may invest in Bitcoin and Ethereum and the other crypto individually through the above-mentioned trusts, but if you want to invest in a basket of large-cap digital assets in the form of security, the Grayscale Digital Large Cap Fund may be an option. Not surprisingly, it is Bitcoin and Ethereum heavy, with Bitcoin and Ethereum making up 61.43% and 28.47% of the fund respectively as of April 27, 2022. It also has minor portions of Litecoin, Solana, Cardano, Avalanche, and other coins. The GDLC had an AUM of  $396.1 million as of April 28, 2022. 

The benefits of Grayscale Crypto products 

We have discussed that investing through Grayscale products helps you make tax-efficient investments in cryptocurrency. But that is not the only benefit. 

It helps you save on tax 

When you invest in crypto through Grayscale securities, you do not have to pay a flat 30% tax on gains. Plus you do not have to pay any TDS. 

Your tax will depend on whether your gains are long-term or short-term capital gains. If you have held your investments for less than 36 months, they will be classified as short-term capital gains and you will be taxed according to your income slab. If you hold your investments for more than 36 months, they will be classified as long-term capital gains and taxed at 20% with indexation benefits. So, if you are invested for the long term, you can save a substantial amount of tax. 

It is safe and hassle-free

To directly invest in cryptocurrencies, you need to open an account with a crypto exchange and then open a crypto wallet. However, the process is cumbersome, as most of the top banks (like ICICI Bank) do not allow you to transfer funds to crypto exchanges. Also, safety is a concern, since there have been instances of crypto exchanges getting hacked. Investing through Grayscale securities makes the process of investing in crypto as simple as investing in a stock or an ETF. Plus, you do not have to worry about the safety of your investments. 

Keep in mind

Note that investing in these securities is a high-risk endeavor. The volatility of the underlying digital assets is high and there are significant tracking errors between the share price and the value of the underlying digital assets. Also, it is important to be aware of the associated fees before you invest. Also, any investment in the above securities will come under the Liberalized Remittance Scheme (LRS) guidelines under which you can invest up to $250,000 per year, per individual. 

To sum up

As we have seen, the hassles of buying crypto and the tax implications on your crypto transactions need not act as a dampener when you invest in your favorite cryptocurrencies. Investing in crypto via the Grayscale securities is not only simpler but also helps you save on taxes. However, since they are high-risk investments, be sure to do due diligence and invest according to your risk appetite. 

How to invest

Vested makes it easy for you to invest in the Grayscale products mentioned above in a seamless three-step process. 

  1. Create a Vested Premium Account 
  2. Fund your account 
  3. Start investing! 

So, what are you waiting for? Sign up for Vested and become a global investor. 

Disclaimer: “This guest post has been authored by the Vested team (https://vested.co.in/). All intellectual property in this post is the property of Vested Finance Inc and its affiliates. This guest post has been published on our blog for your information and convenience only, and the contents thereof are not endorsed by ZebPay. ZebPay does not have control on the content of this guest post, and is not responsible for Vested’s website(s) or its content and availability.”

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