How to Start Investing in Cryptocurrencies Effectively (In India)


5 min read
How to Start Investing in Cryptocurrencies Effectively (In India)

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Investing in Cryptocurrencies is still a confusing idea for many people, but its surging value through the last few months has gotten everyone paying attention again. As per data, Bitcoin has given best returns to investors in 2021 so far (up 33% YTD), GOLD (safe haven) being worst performer.

Source: https://www.timesnownews.com/

It has now proved to become an investment option that beats mutual funds, bank fixed deposits, or even Sensex and Nifty returns over a three-year horizon. The trouble is, not many understand what it means to invest in cryptocurrencies.

What is Cryptocurrency? A cryptocurrency is a new form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities. They don't physically exist but it doesn't mean they aren't worth anything. The word “cryptocurrency” is itself derived from the encryption techniques which are used to secure the network.


Let's move forward this discussion in four parts.

1) Is it legal to invest in crypto in India?
2) Why & How much to invest in crypto?
3) How Can I get started today (now)?

4) Risk associated while investing in crypto.

Yes it's legal! (As on today 19 Feb 2021)

In 2018, the RBI barred regulated entities (such as banks) from dealing with Bitcoin. but later in the year, the Supreme Court also backed this decision. While holding Bitcoin was never made illegal, the SC decision means that companies in this space can do business more easily. There are no rules, regulations, or guideline in places for resolving disputes that could arise while dealing with Crypto. This amplifies the risk factor while dealing with the cryptocurrency in India. However, it is legal to buy and sell cryptocurrencies in India.

2) Why & How much to invest in crypto?

Why to invest?

Elon Musk-owned electric carmaker Tesla has recently announced that it had converted $1.5 billion (~10,800 core INR) of its cash holding into Bitcoin and will accept the cryptocurrency as payment for its products in the future. Analysts from Jefferies believe that "Institutional ownership of Bitcoin has only just begun, Where Musk goes, others will now surely follow".

See the below one:

Source



Many traditional businesses are integrating cryptocurrency into their platforms in some forms like Twitter & Reddit uses Dogecoin to reward people. In Oct 2020, PayPal launched a new service that made it possible for their account holders to buy, sell, or hold cryptocurrency, or to use it to buy stuff at 26 million different merchants. Most recently, North America’s first Bitcoin ETF got off to a stellar start in its debut, with investors exchanging $165 million worth of shares.

  • Cryptocurrency is decentralized, open-source nature helps to eliminate the weak points of the modern banking system by bringing access directly to consumers.
As per Forbes, A leaked Citibank report reveals that Bitcoin could rocket to $300,000 price by end of 2021.



How much to invest?

About 5 to 10% of one’s portfolio (for high risk takers) with cryptocurrency investments for good returns. The rest of the portfolio can be filled with direct equities, MFs, Fixed deposits, commodities and gold. Experts suggest a small portfolio allocation in cryptos, preferably as an SIP.

A few months back I started with Coinswitch and made few of my investments in Bitcoin and Ethereum and returns indeed surpassed my expectations & outperformed (up 58%) the equity and MF portfolio.
(This doesn't mean it's a buy recommendation for you)

Generally Crypto assets experience large fluctuations in price because of institutions investing in Bitcoin. Many multinational players have got into the market and investing some of their clients’ money. Hedge funds are also hedging their portfolios against inflation in Bitcoin and other cryptocurrencies. Previously, they used to hedge against inflation by investing in gold.

3) How Can I get started today (now)?

As per coinmarketcap there are 4,100 investable cryptocurrencies are available. In India, you can buy crypto assets from several online exchanges like Coinswitch, BuyUCoin, Coinshare, Unocoin etc. These exchanges will allow you to buy, sell, and hold cryptocurrencies. Most of them use  like using safe Internet practices two-factor authentication and unique and strong password. As I said, I only used Coinswitch and have no idea about others.

These exchanges will have a KYC (Know Your Customer) requirement. This is a quick 2-min process which involves verifying your identity using your government-issued ID cards like an address proof, PAN card, and your bank account details.

  • Crypto markets are fully 24 hours a day, seven days a week.
  • You need to transfer funds to these exchanges online.
  • Once you place an order, you can purchase the cryptocurrencies using these digital payment methods.
  • You can sell anytime and funds will be instantly available (unlike stocks which takes T+2 days to settle) to withdraw.
  • You don't need to buy a whole coin to start your investment. You can start your Bitcoin or other cryptocurrencies investment by chipping in as low as Rs. 500.

There are seven million crypto holders in India with over a billion dollars in crypto assets. The majority of the crypto traders are in the 25-35 age ground.

4) Risk associated while investing in crypto.

Although investment in cryptocurrencies seem like a great investment, it's important to do your research before you take the plunge. Experienced investors who know what they're doing won't need to be told this, but for beginners, it can be very risky.

For example, one Litecoin would have set you back more than $300 at the end of 2017 ($306.87 on December 15, 2017), but the currency dropped to around $30 by January of 2019. At the time of this writing, one Litcoin is worth $231.54.

And we all know that Bitcoin fell below $4,000 per coin in January of 2019 before hitting an all-time high (so far) at $52,000+.

While it's always fun to win, that's a wild ride many people would never want to be on.

Recent updates and caution:

The Indian government is readying a law that may provide 90 days to crypto exchanges to unwind their operations in India apart from making in illegal to trade, invest or hold Bitcoins and other cryptocurrencies. The government may ask the RBI to notify the law once it's passed. One of the uncertainties for crypto exchanges and investors is whether the law will ban holding/Trading crypto assets in India or whether it will apply to Indians  holding/trading anywhere.

Big investors are already looking at ways for moving their crypto assets from Indian to other bitcoin-friendly nations such as Singapore or Malta.

Disclaimer: This post is only for educational and knowledge purpose, not an investment advice anyway. Past performance is not necessarily indicative of future results. All investments in crypto carry significant risk and all investment decisions of an individual remain the specific responsibility of that individual.

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Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

If you are new to stock market then open your demat account here in just 2 hours and start investing.

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