International Literacy Day 2021: Cryptocurrencies are the newest entrants to asset classes. However, several people who invest in cryptos still consider it a shortcut to make quick bucks. That is a totally flawed approach
International Literacy Day 2021: In a world full of risks and uncertainties, the scope of financial literacy is continuously expanding. More so, amid the rapidly growing popularity and adoption of crypto assets (cryptocurrencies) in India.
The Crypto market is too big to ignore. Consider some numbers: The global crypto market cap as of today is USD 2.12 trillion, according to CoinMarketCap. In India, the cryptocurrency market grew from USD 923 million in April 2020 to a staggering USD 6.6 billion in May 2021, which is an average of 50% per month. Over 1.5 crore Indians are already invested in crypto, according to blockchain data platform Chainalysis.
As the excitement around crypto builds further through social media, word-of-mouth, advertisements, influencers etc., more and more people, equipped with little financial or technological knowledge, are jumping on the crypto bandwagon, hoping to make quick money. Even from small towns and villages, a large number of people who probably never had any exposure to assets like equities and mutual funds, are taking the crypto route to change their fortunes. But this may be dangerous in the absence of proper understanding!
“Crypto assets have emerged as the new asset class. Despite regulatory uncertainty, Indians have embraced crypto. India ranks second on the Global Crypto Adoption Index published by Chainalysis. Savvy investors, millennials and even people from tier 2 and tier 3 cities of India have started investing in cryptocurrencies,” Sharat Chandra, Blockchain and Emerging Tech Evangelist told Fe Online,
It is believed that only an informed customer can take proper financial decisions. Even RBI says in its “National Strategy for Financial Inclusion 2019-2024)”, that “Financial literacy enables a customer to have necessary awareness about the available products, ability to choose the right product and available mechanism for grievance redressal.”
Thus financial literacy is important. And including lessons on cryptocurrencies in financial literacy programmes is probably the need of the hour.
As Nischal Shetty, CEO of crypto exchange WazirX, told FE Online, “In today’s world, being financially illiterate is like being a batsman/batswoman facing a fast-bowler without a helmet.”
“With the numerous investment opportunities available, it’s critical for us to be financially literate. And, financial literacy now includes cryptocurrency. Crypto has opened the door to financial freedom like never before, but a lot of people remain unprepared to understand crypto and truly harness its power,” Shetty said.
Edul Patel, CEO and Co-founder of algorithm-based crypto trading platform Mudrex, said, “Cryptocurrencies are the newest entrants to asset classes. However, several people who invest in cryptos still consider it a shortcut to make quick bucks. That is a totally flawed approach. Cryptocurrencies need to be seen as a hedge against multiple factors. The coronavirus pandemic showed us the importance of having a hedge in the financial markets.”
Shetty suggested that investors should consider the volatility of cryptocurrency investments. “For instance, we have recently witnessed a sharp drop in crypto prices. Although this fluctuation is natural with cryptocurrency, one should make informed decisions and understand how the crypto market works before investing. Therefore, financial literacy should include crypto and that’s not up for debate.”
Why crypto literacy is required
With thousands of crypto coins in circulation, it’s necessary to have awareness and literacy on digital assets and associated risks to safeguard investor interest.
“The fact that the Indian government is contemplating classifying cryptocurrencies as an asset class underscores the significance of investor education. Crypto, a relatively new asset class as compared to traditional assets, is more volatile. Therefore, education and literacy on digital assets is needed to ensure people are aware of the pros and cons and do not fall prey to ponzi schemes,” said Chandra.
Patel said that financial literacy on cryptos would allow us to think about this speculative asset class as a powerful hedge against inflation and other ‘black swan’ events.
“Similarly, diversification across asset classes in general and across cryptos, in particular, would help an investor to sail through volatile times. Moreover, knowledge about cryptocurrencies and their use cases would protect investors from rushing towards random cryptos, where investors end up losing their entire capital. Such valuable lessons are vital for any person who wishes to attain financial literacy,” Patel said.