Greenvissage explains, What is Bitcoin ETF and what it means for the crypto- market?

After over a decade of attempts, the Securities and Exchange Commission (SEC) is on the verge of approving the first spot bitcoin exchange-traded fund (ETF) in the United States. This potential landmark decision comes as the crypto market celebrates the 15th anniversary of the mining of Bitcoin’s genesis block, marking a significant moment in the industry’s evolution. Bitcoin ETFs are investment funds that track the price of Bitcoin, providing individuals with a convenient way to allocate funds to the cryptocurrency without the need for direct ownership. These funds can be traded on stock exchanges, offering investors exposure to Bitcoin’s price movements without the complexities associated with cryptocurrency exchanges. Bitcoin ETFs predominantly invest in Bitcoin, providing investors with leverage to the cryptocurrency’s price without requiring in-depth knowledge of its workings. The ETF’s unit price fluctuates with Bitcoin’s price, trading on traditional stock exchanges rather than cryptocurrency exchanges.

For more than ten years, industry leaders have been urging the SEC to greenlight a US spot bitcoin ETF, seen as a gateway for institutional investors. Previous attempts, however, have faced rejection. The current optimism in the market stems from analysts predicting that at least one of the numerous proposals currently under consideration may receive approval as early as this week. Opinions within the crypto community regarding the potential approval of a spot bitcoin ETF are diverse. While some believe that the long-term impact will be substantial, creating trillions in value, however, initial flows might only be a few hundred million of mostly recycled money. On the other hand, some analysts anticipate a radical shift in supply and demand dynamics, with the approval requiring ETF issuers to acquire tens of billions of dollars worth of bitcoin to meet institutional demand which could lead to a supply shock.

Bitcoin ETFs offer several advantages for investors seeking exposure to the cryptocurrency market. One key benefit is the convenience they provide. Investors can gain leverage to Bitcoin’s price movements without the complexities of direct ownership, such as managing private keys and dealing with cryptocurrency exchanges. This accessibility opens the door for a broader range of investors who may be hesitant or unfamiliar with the intricacies of the cryptocurrency space. Another advantage is the potential for tax efficiency. While the cryptocurrency market is decentralized and largely unregulated, certain Bitcoin ETFs are subject to regulation by the Securities and Exchange Commission (SEC). This regulatory oversight can offer tax benefits to investors, making Bitcoin ETFs a more attractive option for those concerned about tax implications compared to owning Bitcoin directly.

One significant disadvantage of Bitcoin ETFs is the lack of actual ownership of Bitcoin. Investors in these funds don’t hold the underlying asset, which means they miss out on some of the benefits associated with direct ownership, such as acting as a hedge against traditional financial risks. Additionally, the fees associated with ETFs can be a drawback. Investors need to be mindful of the expense ratio, as fees vary between different ETFs. Lower expense ratios are generally more favourable for investors, as they reduce the overall cost of holding the ETF. Furthermore, Bitcoin ETFs face restrictions in terms of cryptocurrency trading. Unlike directly holding Bitcoin, these investment vehicles cannot be traded for other cryptocurrencies. This limitation may hinder investors looking for a more diverse portfolio within the broader cryptocurrency market. Lastly, the potential for inaccuracies in tracking Bitcoin’s price is a concern. While Bitcoin ETFs aim to mimic the cryptocurrency’s price movements, holding additional assets for diversification may result in a lack of precise correlation between the ETF’s price and Bitcoin’s actual market value. Investors must carefully consider these drawbacks alongside the advantages when deciding whether to allocate funds to Bitcoin ETFs.

While the impact on the market remains uncertain, the approval could mark a pivotal moment in the journey towards mainstream adoption of cryptocurrencies, with potential benefits and challenges for investors and the broader financial landscape.

Greenvissage Explains, Who can claim ownership of securities – Legal Heirs or Nominees?

India’s Supreme Court delivered a significant judgment, clarifying the status of nominees in financial instruments such as shares and debentures. The case involved a family patriarch who executed a will in 2011, outlining provisions for successors to inherit his estates. Despite nominees being designated for mutual fund investments exceeding INR 3 crore, the court ruled that the nominees were not entitled to automatic possession. The Supreme Court underscored that the nomination process in the Companies Act of 2013 and the Depositories Act of 1996 serves a limited purpose – to streamline procedures until the legal heirs can claim their rights. The Supreme Court’s decision has once again outlined that a nominee named in a share or debenture certificate does not automatically inherit it. Instead, the inheritance or succession of these financial instruments is determined by the deceased’s will or applicable succession laws, such as the Hindu Succession Act and the Indian Succession Act. The court clarified that nominees function merely as fiduciaries, holding the securities in trust for the legal heirs and being accountable under succession law. The ruling emphasizes that the rights over these instruments should be with the legal successors as defined by the law or the will of the original owner, rather than the nominees.

In legal and financial contexts, a nominee and a legal heir are distinct roles with different implications in terms of ownership and inheritance. A legal heir is an individual who has a rightful claim to the assets and properties of a deceased person based on inheritance laws, a valid will, or other legal documents. Legal heirs are determined by the deceased’s will, if one exists, or by applicable inheritance laws, which may include specific legislation like the Hindu Succession Act or the Indian Succession Act in the Indian context. Legal heirs have a legal right to inherit the assets and properties of the deceased and are recognized as the rightful owners after completing the necessary legal procedures. Meanwhile, a nominee is an individual chosen by the owner of an asset, such as shares, debentures, or a bank account, to act as a caretaker or custodian in the event of the owner’s death. The nomination process is commonly used to streamline the transfer of assets and ensure a smooth transition of ownership. The nominee does not automatically become the owner of the assets but holds them in trust until the legal heirs can claim their rights. The nominee’s role is essentially administrative, managing the assets until the legal process of succession is completed.

The ruling establishes a clear distinction between nominees and legal heirs, emphasizing that the nominee’s role is that of a caretaker until the legal heirs establish their rights over the assets according to succession laws. The court clarified that the nomination process does not override succession laws, and the provisions in the Companies Act and the Depositories Act do not create an alternative mode of succession. This decision is expected to facilitate a smoother process for distributing the estates of deceased individuals, particularly concerning shares and securities, which often constitute significant assets in an estate.

Greenvissage explains, How will RBI’s new guidelines on inoperative and unclaimed accounts benefit the customers?

The Reserve Bank of India (RBI) has recently announced a significant revision in guidelines about inoperative accounts and unclaimed deposits, intending to streamline classification and activation processes. These guidelines, applicable to all Commercial Banks and Cooperative Banks, are set to come into effect from April 1, 2024. An account with no ‘customer-induced transactions’ for over two years is deemed inoperative. This includes financial transactions initiated by the account holder, non-financial transactions, or KYC updates. As of now, an estimated INR 1-1.30 lakh crore lies dormant in inoperative bank accounts. Customers are required to submit fresh KYC documents for reactivation. Only customer-induced transactions are considered for classification. This includes standing instructions or auto-renewals which are treated as customer-induced transactions. Meanwhile, bank-induced transactions (charges, fees, interest payments) are not considered for classification. Meanwhile, unclaimed deposits refer to balances in savings/current accounts inactive for 10 years or term deposits unclaimed after 10 years from maturity. As of March 2023, approximately INR 42,270 crore remains unclaimed in banks. Credit balance in any deposit account not operated for ten years or more is transferred to the Depositor Education and Awareness Fund maintained by the RBI.

As per the new guidelines issued by the Reserve Bank of India (RBI), banks are mandated to conduct an annual review of accounts with no customer-induced transactions for over a year. For term deposits, banks must review accounts where customers have not withdrawn the proceeds after maturity or transferred them to their savings/current account. Banks must also notify account holders about the lack of operations through letters, emails, or SMS. Such alert messages must explicitly state the account’s impending ‘inoperative’ status if no operations occur in the next year. Accounts opened for beneficiaries of government schemes and students (with zero balance) should be segregated in the core banking solution and such accounts have been exempted from the above rules. The RBI has also allowed the Video-Customer Identification Process (V-CIP) for reactivation upon the account holder’s request. Banks cannot charge any fees for activating inoperative accounts. Banks also cannot impose penal charges for non-maintenance of minimum balances in inoperative accounts.

Interest on savings accounts should be credited regularly regardless of the account’s operational status. The revised guidelines by the RBI aim to protect the interests of account holders while ensuring the efficient management of inoperative accounts and unclaimed deposits. These measures, effective from April 1, 2024, are expected to bring greater clarity, communication, and ease in the handling of dormant accounts within the banking sector.