Want to invest in cryptocurrency? Here is all you need to know

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Updated: November 12, 2021 2:12 PM

We’ve all heard of someone who invested in a cryptocurrency and benefitted from a large return on investment. Experts say, don't do anything with your money that you don't understand.

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 earningsBefore entering the crypto sector, figure out the kind of investor you are, and what investments would fit you the best.

Cryptocurrency has been controversial for long. Usually, investors are always doubtful about investing in it. As it is a volatile asset class, experts say, cryptocurrency investors should have a high-risk tolerance. For instance, the world’s largest cryptocurrency Bitcoin came to an almost 4-month low in April 2021. Earlier Bitcoin had dropped down by 50 per cent to $30,066 from its record high of $64,895. Ethereum had also dropped nearly 57 per cent to $1,850 during that month.

There have always been a lot of uncertainties in this class of assets. However, this has not deterred Indians from investing in this asset. But one should not jump into it unprepared. Do some research about the asset class before diving in.

Darshan Bathija, CEO and Co-Founder of Vauld, says, “Do the work – research – read everything you can about the sector, the coins, the projects, the tech. Don’t believe everything you read on social media.”

He further adds, “We’ve all heard of someone who invested in a cryptocurrency and benefitted from a large return on investment. Don’t do anything with your money that you don’t understand.”

Before entering the crypto sector, figure out the kind of investor you are, and what investments would fit you the best. Note that, the crypto-market volatility has been widely covered in recent times. So, Bathija adds, “understanding your goal with digital asset investments that complement your risk appetite is one of the most important steps you should chalk out before leaping.”

Cryptocurrencies: How to go about investing in them?

Devise a plan for your cryptocurrency assets, for instance, a plan involving setting limit orders on trades, and exchange selection. Experts say one should ensure that the exchange one chooses provides strong levels of liquidity, an array of crypto assets, and is reliable.

Even though investing in the right digital asset can be tricky sometimes, Bathija points out, “what needs to be taken into account is the project’s reliability. When it comes to digital assets, look at the collective trust a coin’s community places in the project.”

He further adds, “Other features that contribute to a project’s USP include its supply conditions and its Raison d’etre. Whether the coin’s supply is finite or not can determine its worth.”

Other points to research include transaction cost, transaction speed, divisibility. Hence, do your research on all these points before you decide to buy an altcoin. Understand the current limitations of the project as well, and double-check reliable sources to ensure that the project is legitimate and is functional.

How much of the portfolio should be allocated to cryptocurrency?

If you are just starting to invest in cryptos or planning to invest, be sure about how much you should allocate to cryptocurrency. This mostly depends on what your investment goals are and what your risk appetite is. As one initially starts one’s crypto investment, an initial 2-4 per cent exposure to digital assets would be ideal. And as you gain exposure to the market, and gain insights into trends, you can gradually increase your crypto allocation.

Bathija says, “In the crypto market, Bitcoin rules the roost. Altcoins’ movements are dictated by the king coin’s movements. An investor’s crypto allocation ought to include Bitcoin to the maximum potential. Ethereum deserves a sure-shot slot, while one can spread the rest to other altcoins.”

Who is typically investing in cryptocurrency?

Just take a look at the popular newspapers, you’ll notice a conspicuous uptick in the crypto ecosystem’s news coverage. According to Bathija, this ties back to the fact that an increased number of people are looking into investing in digital assets.

He further adds, “Millennials – shaped by the Internet revolution – instinctively have taken to digital assets. They’re tech-savvy and prefer instant gratification when it comes to investments as well. Naturally, the high ROI of cryptocurrencies can be appealing to the Millenials and Gen-Z. What also complements their investment instincts is the high risk that is present in the crypto markets. They don’t mind taking a risk, in comparison to the conservative investing styles of older generations.”

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