Key factors to consider for reducing the risk of crypto investment

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August 16, 2021 1:56 PM

Maintaining a healthy portfolio, for instance, not just investing in Bitcoin but a basket of coins will help to minimise losses.

cryptocurrency investment, Bitcoin, cryptocurrency, Elon Musk, Bitcoin, cryptocurrency, legal tender, bitcoin, cryptocurrency, FEMA, cryptocurrency, bitcoin, dogecoin, ethereum, buy bitcoin, wazir-x, binance, zebpay, bitcoin, income tax on crypto earningsInvesting for the long term is the best investment strategy when it comes to crypto assets.

Cryptocurrencies are highly-rewarding investments but they are also volatile and possess high risk. Experts say investment decisions in cryptocurrencies must be backed with research like one does while investing in stocks and mutual funds.

Ashish Singhal, Founder and CEO, CoinSwitch Kuber, says, “While investing in crypto, investors must adopt a long-term approach and they must not expect a quick return as the value of cryptocurrencies depends on market supply and demand.”

While starting to invest in crypto, one should start small. Cryptocurrencies are a new asset class and investors should treat them like an investment in a startup—a high-risk high-reward category.

Avinash Shekhar, Co-CEO of ZebPay, says, “Start small with 1-2 per cent, may go up to 5-10 per cent over a period of time. Rupee cost average into a crypto asset to navigate volatility. Volatility in price is a normal nature of a new asset class and we might see more stability in price once the market matures over time.”

Some of the top-traded currencies right now are Bitcoin, Tron (TRX), Ethereum (ETH) and Ripple’s XRP. While Ethereum can be considered as the most favoured cryptocurrency these days, experts say other options like Ripple (XRP) and Litecoin (LTC) are also increasingly gaining traction based on their technological advantages.

Should you take a loan to invest in crypto?

Every investor has their own personal risk appetite when it comes to investing and it depends on a lot of factors. Experts say it’s always best to invest an amount that one does not immediately need and can risk market volatility. Taking a loan to invest is not advised, instead, one can start investing with small amounts over a long period of time to get better returns. Crypto SIPs, experts say are the best way to start investing with small amounts at regular intervals.

Singhal of CoinSwitch Kuber says, “A rational approach towards investing in crypto would be to not borrow and invest in any asset class, whether crypto or shares or even gold. The reason being, all classes of assets are volatile and don’t always provide a stable return whereas loans carry interest rates which need to be paid at regular intervals without fail.”

He further adds, “Investors need not always invest huge amounts in cryptocurrencies, they can also purchase a fraction of a coin of their choice and increase their investments as and when they have more money to invest.”

The right approach to investing in crypto

Investing for the long term is the best investment strategy when it comes to crypto assets. Shekhar of ZebPay says, “Cryptos like Bitcoin and Ethereum have strong fundamentals and many use cases. As you might hear a lot in the crypto space, buy and hold (hold your crypto for the long term) is the best investment strategy for crypto assets.”

Experts say one should adopt a slow and steady approach at the start of investing in the crypto market. Start by investing small sums of money first and increase the investment after getting familiar with the arena.

Singhal adds, “Maintaining a healthy portfolio, for instance, not just investing in Bitcoin but a basket of coins will help to minimise losses. Also, one must not act on tips and hearsay. Well thought out research would help in investing wisely.”

Risks to be considered while investing in crypto

Investors should always choose a reliable platform to buy and hold their crypto. Shekhar adds, “Investors should give importance to education before investing in crypto—such as the importance of self custody of coins, fundamentals of the cryptos, etc. This will help choose valuable cryptos and not follow celebrity tweets to FOMO into assets with little to no underlying value. Knowledge of fundamentals of cryptos like Bitcoin and Ethereum will also help build a long-term wealth creation strategy instead of FOMO-ing in or panic selling when the market moves in an unexpected direction.”

Additionally, while choosing the intermediary, look for a trustworthy platform that can also provide ease of usage as well as security without making the investment process complicated.

Singhal says, “One should not ignore the fact that the cryptocurrency market, like any asset class, is volatile. Unexpected changes in market sentiment can lead to sharp and sudden moves in price. Legitimate exchanges that follow KYC guidelines should be used.”

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