Investing in Cryptos & Counting Your Returns

Ten years ago, most people would have laughed if investment advisories included an asset class called cryptocurrencies. Today, these early adopters are seen as ahead of their times by choosing ‘futuristic’ assets to help grow their wealth multi-fold. Cryptocurrencies, led by Bitcoin, have proved to be a technical and investment tour de force that no longer can be brushed under the rug. In India, investing in cryptocurrencies is legal while the Government is deliberating a formal regulatory approach towards the same.

Bitcoin reached a record high of $65,000 (INR48 lacs) a few days ago and is still going strong from the rally that began in mid-2020. While worries about speculation and volatility in cryptocurrencies exist, investors who have patiently waited long-term with assets such as Bitcoin and Ethereum have got better yields compared to other assets in their portfolio.

All numbers in INR. Data as of 15th April 2021.

Source: coinmarketcap.com, goldprice.org and investing.com

Growing Adoption and Becoming Mainstream

Bitcoin has come a long way since its inception in 2009, from being just a buzz word among tech lovers to becoming a quintessential crisis asset for safeguarding investments. The growing mainstream adoption of Bitcoin has had a tremendous positive effect on its price. 

Tesla, Facebook, Paypal, Visa, Mastercard and Wall Street stalwarts like JP Morgan have either invested or already started building technologies to drive the next wave of crypto-adoption. Institutional players, hedge fund managers and even family offices have shown an urgency recently to hedge their portfolio against inflation even as the central banks around the world pump trillions of dollars as monetary stimulus to tackle the crisis posed by coronavirus.

Against this backdrop, multiple altcoins (alternative cryptocurrencies) have also bloomed, each with its own set of real-world use cases.

While the past performances have been exceptional, it is important to understand the future prospects of cryptocurrencies to decide if you should invest in them. We want to highlight two major uses cases of cryptocurrencies that may be game changers in the near future.

Decentralized Finance (DeFi):

 Blockchain technology offers a myriad of financial solutions like savings account, lending, payment, structuring of derivatives, investment & trading options to name a few. There are many projects that are currently being built on a decentralized ecosystem offering greater degree of transparency and hence beginning to challenge the behemoths of the current centralized and often colluding global financial system. All these projects have an associated cryptocurrency that are bound to grow along with mass adoption.

 Chainlink, Uniswap, Yearn.Finance and Aave are some of the popular DeFi projects that have seen crazy growth in both volume and prices in the past few months. These DeFi projects aim to help achieve financial inclusion by obviating requirements such as ‘Minimum Account Balance’ and by negating the high fee structure of transactions.

Democratising Data:

 Companies like Google, Facebook or Uber value user data to maintain their edge over new entrants in the market. Recently, many allegations of misuse and non-conformance to privacy have been raised against such companies. Cryptocurrencies and its underlying blockchain technology have the ability to democratise this data by storing it in a secure and auditable common public database accessible only by those entities that a user accord permission to.

 Imagine a taxi service built on top of an open-source platform (like Ethereum) that takes no share of revenue from both the taxi driver and the passenger. For a developing nation like India, it is imperative for us to encourage such innovations and entrepreneurs across industries.

Grow Your Crypto Portfolio Steadily and Be Patient

If you believe in the use cases above and if the past is an indication, cryptocurrencies will continue to outperform all other assets. However, you have to go through a learning cycle (and a bit of unlearning) before you start trading.

Unlike the traditional equity or commodity markets, crypto markets are 24 x 7 all-year. You will need an account in one of the top cryptocurrency exchanges in India like Giottus that help convert INR to cryptocurrencies, vice-versa and also let you trade between currencies.

You can invest any amount, starting as low as INR100, to buy any cryptocurrency. However, we advise that you stick to the top 2 (Bitcoin, Ethereum) when you start off. There may be high volatility depending on market sentiments but long-term holders (3 year+ horizon) have only grown consistently.

We suggest not to have more than 20% of your portfolio on cryptocurrencies at the start. This allocation can vary depending on your risk appetite.

The author is CEO and Co-founder, Giottus Cryptocurrency Exchange.

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.