Some Points to Keep in Mind before You Invest in Crypto

Most people would have laughed 10 years back if investment advisories included an asset class called cryptocurrencies. Today, the early adopters are seen as ahead of times by choosing ‘futuristic’ assets to grow their wealth multifold. Cryptocurrencies, led by Bitcoin, have proved to be a technical and investment tour de force that no longer can be brushed off as a bubble. Investing in cryptocurrencies is legal in India while the government is deliberating a formal regulatory approach towards the same.

Bitcoin reached a record high of $ 65,000 (Rs 48 lakh) a few days back 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 rupees. 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 buzzword among tech lovers to becoming a quintessential crisis asset for safeguarding investments. The growing mainstream adoption of Bitcoin has had a tremendously 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 recently shown an urgency to hedge their portfolio against inflation, even as the central banks around the world pump trillions of dollars as a 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. Let us look at two major use cases of cryptocurrencies that may be game-changers in the near future:

1. Decentralised Finance (DeFi):

Blockchain technology offers a myriad of financial solutions like a 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 decentralised ecosystem offering a greater degree of transparency and hence beginning to challenge the behemoths of the current centralised and often colluding global financial system. All these projects have an associated cryptocurrency that is 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.

2. Democratising Data: 

Companies like Google, Facebook, or Uber have 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 their 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 accords permission to. 

Imagine a taxi service built on top of an open-source platform (like Ethereum) that takes no share of the 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 rupees to cryptocurrencies, vice-versa and also let you trade between currencies. 

You can invest any amount, starting as low as Rs 100, 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 having more than 20% of your portfolio on cryptocurrencies at the start. This allocation can vary depending on your risk appetite.

The author is Co-Founder  & CEO, 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.