[Explained] As Bitcoin outperforms in 2020, here’s a beginner’s guide to investing in cryptocurrency&
New Delhi: Bitcoin, by far the best-known cryptocurrency, has in recent weeks been making headlines with the unreal upwards movement it recorded on the price charts recently, setting fresh all-time highs.
With prices of Bitcoin soaring to a record high of $23,000 and bringing its returns so far in 2020 to over 200%. Many investors are flocking to this unregulated new-age asset. The price of Bitcoin towards the end of this COVID-hit year reminds of Heisenberg’s uncertainty principle. At least in the last few weeks, the Bitcoin rally has been exponential so much so that new milestones have become the norm. This has led to uncertainty in predicting the possible extent of the bitcoin rally. The value of Bitcoin has crossed $23,000 as of December 17. Just 24 hours earlier, the bitcoin breached the $20,000 mark for the first time in its short history. But beyond the rally and the milestones, the year 2020 has been a transformative one for the cryptocurrency and the ecosystem.
We spoke to industry experts to find answers to the most frequently asked questions that pop-up in one’s mind when they think of investing in this new age asset class.
Is it a good time to invest in Bitcoin or other cryptocurrencies
Monark Modi, Founder, and CEO of Bitex, said: “Unlike 2017, where investment in cryptocurrency was more driven by popular sentiment, in 2020 there is a lot more seriousness towards this alternative investment class. This is definitely the time for Indian investors and traders to invest in cryptocurrencies as they have better knowledge. We are seeing investment banks embracing the ecosystem, payment service providers putting their trust and even large-scale investors are investing in cryptocurrency.
Speaking about whether one should invest in Bitcoin as a short-term investment or otherwise, Vikram Rangala, CMO, ZebPay said: “The simplest way for anyone to get into bitcoin is rupee cost averaging so that the average price that you invest is the best possible price you can get overtime. At ZebPay, we always recommend users to invest for the long term and think of Bitcoin as a store of value, rather than go for short-term trading and speculation. If you held bitcoin longer than 3 and a half years during any period up to now, you had a 99.9% chance of making a profit. That’s almost never seen in any other asset class.”
Decoding SC cryptocurrency judgment: What does it mean for investors
The Supreme Court’s ruling was seminal in setting the road ahead for cryptocurrencies in India. While a lot of us are still waiting for more clarity to emerge but the lifting of the ban essentially means there is a need to explore the opportunity around this digital asset and learn how to regulate it.
Explaining the SC ruling, Sumit Gupta, Co-Founder & CEO, CoinDCX said: “In April 2018, the central bank Reserve Bank of India (RBI) passed a de facto banking ban which prevented banks from working with cryptocurrency exchanges in India. This banking ban was specifically put towards financial institutions, banks to prevent them from offering banking services to cryptocurrency exchanges/firms, etc.”
“But the banking ban was misunderstood by a large number of Indians who thought that crypto was banned and it was illegal. That was not the case. Buying crypto, trading and holding were not banned. There were no laws and regulations passed for buying, trading, or holding crypto,” Gupta added.
In March 2020, two years after the banking ban, the Supreme court lifted the banking ban, and then many banks have directly started providing banking services to cryptocurrency exchanges, banks.
Rangala said that “Cryptocurrency has never been illegal in India, and the RBI itself restated that crypto is legal. We look forward to getting regulatory clarity, but in the meantime, many of the existing laws in India do apply to crypto even if they don’t say the word crypto. Our legal team works to make sure that we are following the letter and the spirit of the law in all areas.”
“We believe that until we get government regulation, crypto firms should set the highest possible standards in their self-regulation to protect our customers and public, and if possible to serve as a model for how future policy should look. Indian investors should know that crypto is legal in India, but they should invest through a trusted exchange that follows proper KYC and anti-money laundering policies,” Rangala added.
For most Indians cryptocurrency means Bitcoin. Which are the other major cryptocurrencies?
For most Indian investors the focus is currently on Bitcoin and the recent rally that has taken the price of Bitcoin to its all-time high is reflective of this mood. Modi states that ” It is true that Bitcoin is the most popular. However, another cryptocurrency to watch out for is Ethereum, which itself has seen a rally reaching $677 in the past week. It is already the second-largest cryptocurrency and traders remain very bullish on it hitting the $800 mark soon.”
“Ethereum’s blockchain allows for the development of a huge range of software applications. It is sometimes called a “world computer” because it functions like a giant, decentralised operating system. Ethereum is like the bitcoin software, but it does things differently. Bitcoin can move value from one place to another. Ethereum can move value from one place to another based on conditions, in the form of “if-then” contracts. The contracts execute automatically once the “if” part has been completed. This allows the creation of smart contracts and complex applications. For example, IF my taxi has brought me to my destination, THEN credit the driver’s account. Ethereum supports a whole host of decentralized applications, and many see it as the starting point for completely decentralised finance in the future,” Rangala further explained.
A beginners guide: Know this before you invest
First, for any trader or investor, especially those who are beginners, Bitex would advise that is important to understand the basic concepts of Blockchain that are the underlying framework of cryptocurrency. This helps clear many doubts and misconceptions and gives a fair understanding of the alternate investment class.
Modi said: “It is also important that people start building upon the asset in a systematic manner and for a longer duration so that any volatility in price averaged out in the long run. Indian investors and traders can also leverage platforms like Bitex, which is a digital asset exchange and professional trading platform to buy and trade in cryptocurrencies. It is also important to observe the price trends, understanding technical indicators for any investor investing in cryptocurrency.
Further, experts recommend getting started with a small amount—as little as 100 rupees—that you commit to investing every day, week, or month.
Rangala explains: “You can get started with your cryptocurrency investment by registering yourself as a ZebPay member, or with any of the other crypto exchanges in India. It takes about 5 minutes to download our app and complete your KYC and bank verification, and then you’re ready to deposit money and start investing.”
If a person is new to crypto, they can firstly start learning about Bitcoin and gradually take steps towards investing. Gupta said: “One can start investing as low as Rs 10 on CoinDCX, or any small amount they are comfortable with. The best part when new users buy from CoinDCX’s Insta, there are zero fees for buying /selling crypto from INR and they can purchase any crypto for as low as Rs 10.”