One of the most asked questions is, “Is Cryptocurrency a good investment?”. Often viewed as a high-risk, high-return asset class there’s widespread misinformation about investing in cryptocurrencies. Some people even think it’s only available for the rich, I recently came to know about this while discussing Bitcoin price on a WhatsApp group chat.
Why Indians should invest in Cryptocurrencies?
- Trust me or not, Cryptocurrencies have revolutionized the payment infrastructure in our world. Earlier cross-border payments were a lot expensive than it is today. Payment Processing companies used to charge high commission & exchange fees for transactions. MoneyGram and Western Union, two of the biggest cross border payment giants are reporting net losses today because of increased costs and lower margins. Today, one can send money to anywhere across the globe within seconds at nominal fees using cryptocurrencies.
- Tether issued over $60 billion worth of digital dollar based currency over its network in 2021. The entire sector has a high liquidity indicating that the ease of buying and selling cryptos has improved a lot. Cryptocurrencies aren’t only traded by large institutions or tech savvy individuals. Even the millenials are looking to diversify their savings in Cryptocurrency.
- Like any other currency has monetary value, Bitcoin and other digital assets with no physical existance have their own value as well. Some people often get worried because of the intangible aspect of cryptocurrencies. It isn’t only a bunch of code but certainly more people are believing in the real value of these assets.
- College Students and even employees invest in cryptocurrencies on the aspect of making a profit. Although it’s a new market that keeps operating 24/7, there’s more volatility than traditional stock market. Higher volatility also means that the risk to return ratio on these assets are higher than bonds or FD’s. Thus even a single trade can get someone a hefty profit.
- Traders even have more flexibility in the cryptocurrency markets. They are open 24 hours a day, seven days a week and one can place a trade as per their own wish. Stock markets on the other hand have a fixed daily schedule with closures on weekends and public holidays. The higher volatility and more options of taking leverage often attracts veteran traders onto an exchange.
- Most of the major cryptocurrencies are based upon blockchain ledger, which makes it difficult for hackers. The transactions on a DEX are encrypted and signed with a private key, and verified with a public key. This allows higher transparency which encourages even more people to invest into liquidity pools with much higher rate of return than a bank FD.
- Lastly, it’s cheaper now. Gone are those days in 2015 when one had to pay high commission while buying Bitcoin using INR in India. Today one can buy or sell cryptocurrencies for as low as Rs 100. That makes it affordable and easy to get started for individuals in a developing nation. As of writing this article, over 10 crore people have bought cryptocurrencies in India which is a massive milestone.
How can somone start with little money?
Not everyone in India has a chunk of disposable cash. Even my friends try to save up money by cost-cutting on their day-to-day expenses. Thankfully, anyone with willpower and limited financial resources can get started in crypto investments today. The pre-existing notion of having a lot of money to make money is a myth. Anyone can start investing today with as little as Rs 100. But let us look at a few precautions to account for.
If you’re just getting started on your investing journey, this tip can be helpful. Just like the stock market, crypto is also volatile. Therefore investing in cryptocurrencies should not be more than 5% – 10% of your entire investment portfolio. Only one should start investing after making sure to have enough liquid cash for at least 6 months, insurance, and a good understanding of the market cycles.
Yes, there are a variety of coins in the market, and choosing your long-term bets can be pretty confusing. That being said, let Bitcoin and Etheruem consist of the majority stake in your portfolio. The rest of the coins need to be picked after doing a little research about the coins trending on the market, building a new product, or engaging wildly with the community.
Choosing a Wallet
A wallet is a piece of software that stores your public and private keys to help you connect with the entire DeFi space out there. This isn’t a hardware wallet that stores your funds offline but will be used on a regular basis if you want to send or trade cryptocurrencies through an independent platform. However, there can be hacks or scams trying to steal your ‘key’. Therefore looking for good options can be considered a top priority.
Choosing a good exchange
This is the most crucial part before even trading crypto. Trust me you won’t like your application to hang up during peak volumes in the market. If the market goes through a dip and you lose your buying opportunity just because of the application, trust me it is time to look for alternatives that are more reliable. Even if you’re looking to book profits by selling your coins and the app hangs and doesn’t let you cancel or place new orders, you’ll be frustrated. That’s a reason to keep an eye on the top-rated applications out there.
This strategy works if you are a passive investor and you keep buying the same amount worth of cryptocurrencies every month on a fixed date irrespective of the market. This helps to grow your investments over a long time and saves you from short-term volatility.
Bitcoin being a volatile asset, many investors prefer buying it regularly in parts every month to average out their investments. If an asset price appreciates over time, a SIP can be the best way of buying.
If you’re willing to invest in the markets, it is a great start for anyone. Be prepared for short-term volatility and market corrections. That being said, a long-term holder never loses money but short-term traders do.