How to play it safe while investing in cryptocurrencies like Bitcoin

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Bitcoin has experienced a meteoric rise in value over the past year. (Image: Pexels.com/David McBee)

With some cryptocurrencies like Bitcoin and Ethereum offering investors huge returns in recent months, beating all other forms of asset investing, retail investors are now dipping their toes in the water. The problem is, not many people understand what it means to invest in cryptocurrencies.

A recent survey on The Bharat Express News Online showed that 40.6% of investors think cryptocurrencies are too risky to invest, while 37% said they don’t understand the market. About 15% said they would benefit from quick wins.

Twitter poll on Bitcoin by Financial ExpressMost investors think bitcoin is too risky, while a large number don’t understand it.

Gaurav Dahake, CEO of the cryptocurrency exchange Bitbns, said many people signed up during Bitcoin’s first big bull run in 2017 and 2018, but nearly 90% gave up. However, after the Supreme Court overturned an RBI circular in March that barred financial institutions and banks from trading cryptocurrencies, many investors are pouring in.

Bitbns, which claims a daily trading volume of nearly $ 50 million, has over 75 different cryptocurrency pairs that can be invested in fiat currency, including Indian Rupees.

According to Dahake: “What was the overall volume of transactions in a month before March 2020 is now happening in a single day. Interest levels are climbing in Bitcoin, but they will soon decline. “

Also read: The Dizzying Bitcoin Price Rise: Time to Get Rich Quick or Get Out?

How to start investing in cryptocurrency?

Dahake is quick to advise caution when investing in cryptocurrencies. “For most people, a SIP (systematic investment plan) type of investing makes sense. In the past, people have invested at different price points in a lump sum, and they got burnt badly when Bitcoin fell.

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Other investors who tried to examine ICOs (initial coin offerings – similar to an IPO) of other cryptos also lost money, as nearly 95% of ICOs that were all the rage in 2017 failed. did not materialize, according to Dahake.

Still, it’s an investment option that beats mutual funds, fixed bank deposits, or even Sensex and Nifty returns over a three-year horizon, especially if going the SIP route. There are several cryptocurrency exchanges in India, such as WazirX, CoinDCX, Zebpay, BuyUcoin, and UnoCoin, among others.

The more exchanges there are, the more users they bring to the market. But with only 900 odd Bitcoins mined, the daily demand increases, and therefore the price. Bitcoin’s supply is capped at 21 million, of which around 18.5 million has already been mined and a significant amount is lost forever, stuck in crypto wallets with missing keys.

The big fluctuations are happening now due to the institutions investing in Bitcoin. Kshitij Purohit, main currency and commodities at Capitalvia Global Research, says: “Many multinational players have entered the market and have invested some of their clients’ money. Hedge funds also hedge their portfolios against inflation in Bitcoin. Previously, they hedged against inflation by investing in gold. “

Purohit says the funds are selling bullion and buying cryptocurrency, which makes the future quite optimistic. Bitcoin can consolidate between $ 30,000 and $ 35,000 in the short term for a month, but will gain subsequently. By Diwali 2021, Purohit expects a return of around 150% in Bitcoin.

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Also Read: Bitcoin Boom: The Rise of Indian Cryptocurrencies and Crypto Exchanges

How much to invest in cryptocurrency?

So how much of a person’s wallet should be invested in cryptocurrency?

Shivam Thakral, CEO of BuyUcoin, another cryptocurrency exchange, says, “Don’t look at quick wins, even if you will have short-term gains. Stay invested for the medium and long term. If you look at the performance of crypto over three years, you won’t be lost. “

Thakral says you have to look at the fundamentals of cryptocurrency. He gives the example of ethereum, the second most sought-after cryptocurrency after Bitcoin. It works at the back of a decentralized blockchain computer network. Every time someone relies on this network, more “ether” is used, which makes it pretty tangible.

“In fact, learning crypto is not easy. In general, the markets tend to value things based on perception. Same with fairness, although it’s tangible, but sometimes you can’t justify reviews. Look what’s going on with Tesla, ”Dahake says.

Purohit advises filling around 25-30% of your portfolio with cryptocurrency investments for good returns. He says 10 to 15 percent more should be put in precious metals, especially silver, because industrial demand is strong. He also says he invests around 30-35% in stocks and around 15% in debt funds.

Dahake says anyone who wants to get into crypto investing should start with Bitcoin, even if it is very expensive. His reasoning: “You don’t buy copper because gold is expensive. Think of Bitcoin as the Reliance Industries stock in the Indian stock market. Others are like penny stocks compared to Bitcoin. Start with Bitcoin, but invest no more than 5-6% of your wealth there. “

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Thakral says a lot of risk appetite will come from Indian financial institutions in a few months. “They want a piece of the pie. There is still regulatory uncertainty in India, but regulations are coming. They don’t want to be behind their global counterparts. “

This is when the market will be overwhelmed with investors. Dahake cites an example of Bitcoin’s current position in terms of potential: “Think of an app like WhatsApp. If only one person has it, it has no value. If 100 people have it, it has some value, but when a billion people have it, it’s invaluable. Bitcoin is now at this stage of 100 people. The demand will increase. (And supply is limited.)

All three are of the opinion that Bitcoin would cross $ 100,000 per BTC by 2022. “By the end of this year, people will treat it like gold,” Thakral says.

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