How to safely invest in Bitcoin and other digital assets

Updated: July 15, 2021 10:27 AM

It is crucial to follow certain tips to ensure better returns potential while investing in digital assets and ensure the safety of one’s investments.

Investors should do well to look at digital assets as a hedging and diversification tool that can make a portfolio inflation-proof.

Bitcoin was considered just an interesting phenomenon when it was launched in 2009. Only a few evangelists and futurists believed in the future potential it offered. Fast track to today and crypto adoption is accelerating globally at an exponential rate with many investors now participating in trading Bitcoin (BTC) and other digital assets.

The story is no different in India either, with young investors who recognize the potential are actively invest in popular crypto assets. These digital assets are based on Blockchain technology and work as a record of digital transactions that are independent of central banks. Therefore, they eliminate the need for a bank and allow buyers and sellers to transact directly with low or zero transaction fees. Another exciting aspect of digital assets is that they have seen huge price discovery and are attractive as investments.

However, it is crucial to follow certain tips to ensure better returns potential while investing in digital assets and ensure the safety of one’s investments.

Capital Allocation needs to be decided based on the investor’s risk appetite and the approach maintained towards the investment. For digital assets, it would be advisable to allocate a monthly sum towards systematic investments rather than adopting an aggressive trading approach. Long-term investments in digital assets like BTC have paid rich long-term returns and are the suggested way ahead for novice investors too.

Selecting a digital asset based on fundamental research is the next important step and entails choosing the more popular and reliable crypto assets like BTC, Ethereum (ETH) and their like. This is majorly due to the stronger use case they offer; while BTC acts like a digital store of value and has the largest number of transactions currently, Ethereum is known for the myriad number of decentralized applications and smart contracts it offers.

That said, there are many upcoming digital assets expected to do equally well and require investors to stay updated with the latest trends. Once a digital asset has been chosen, it is important to verify fundamentals like the addressable market size, current market capitalization and its very utility. If it ticks all the right boxes, investors can be confident of their selection and then proceed to make an investment.

Choosing an exchange to trade or invest through is vital since traditional banks do not offer digital assets for trading. Therefore, it is imperative to opt for a reliable crypto exchange that has solid safety & security protocols in place. Investors would be buying, holding, and selling crypto assets on these exchanges, and it would be best if the exchange also provides a digital wallet to store the digital asset.

Exchanges like CoinDCX also offer insurance cover on the digital tokens held in their wallet. Hence, they should be preferred considering the added safety net. If one is already trading through an exchange that doesn’t provide this safety feature, it would be advisable to use a secure digital wallet and access holding only over a VPN (Virtual Private Network). When you use a VPN, the online connection is secured and data encrypted, thus provides an extra layer of protection that ensures complete anonymity to both your data and your crypto purchases.

To sum up, investors should do well to look at digital assets as a hedging and diversification tool that can make a portfolio inflation-proof. A long-term investment approach coupled with sound trading decisions can pay rich returns going ahead for those willing to invest in this new age asset class. Choosing the right crypto exchange for trading and using a secure connection is a must to mitigate any risk of cybercrime or fraud. Lastly, as with any investment, remember to stay focused on the long-term outlook in times of increased price volatility to avoid losses from short-term trading.

(By Neeraj Khandelwal, Co-Founder & CTO at CoinDCX)

Disclaimer: These are the author’s personal views. Readers are advised to consult their financial planner before making any investment.

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