“To the moon….”
Who knew one tweet and ‘one person’ could start a rally – one that would make many who don’t even know about investing millions in the process.
If you got curious about investing in cryptocurrency in the past six months, you’re not alone. In fact, the last six months were one of the biggest rally seasons in the world of cryptocurrency.
Bitcoin reached an all time high of $64,000+ during this period. And the same rally was reflected in the price of altcoins too.
But like all good things, this rally ended too. It had to.
What's in this blog?
What Caused The Recent Crypto Rally (and the Subsequent Fall)?
The rally started due to online activities of a select group of people and particularly, Elon Musk’s support for cryptocurrencies like Bitcoin and Doge.
It’s now known that tweets by Elon Musk lead to massive price movements in crypto space. (like with stock market prices)
Most people who were a part of this recent dogecoin (or cryptocurrency) rally were moved by the massive calls (and support) by others on social media. The prices worked as the network invested more and more. And the rally ended when large investors liquidated their investments.
Did you know?
90% of dogecoin tokens were in 18 wallets alone.
Naturally, the price movements are swayed by people with large capital.
Cryptocurrency is a different ball game altogether, even for experienced stock market investors. Investing in cryptocurrency is a tough nut to crack, because there are no fundamentals (apart from technology use cases). Even the technical charts can give you nightmares when you think of investing in bitcoin, ethereum and altcoin.
This blog will cover the basics of crypto investment and what you as a crypto investor should keep in mind before investing in a cryptocurrency like bitcoin, ethereum or dogecoin.
Getting Started with Cryptocurrency Investments
Before we start with anything ‘cryptos’, a word of warning: Cryptocurrencies aren’t your regular asset class. They’re highly volatile without any fundamental reasons for their price movements.
Most rallies occur due to social media activity, so you should only invest an amount, you can afford to lose (in case everything tanks).
At present, the whole market is nothing more than speculation or gambling, at play.
This takes me to the first confusion everyone has:
Should You Add Cryptocurrency In your Portfolio?
Should you buy bitcoins, ethereum or other altcoins? Well that’s totally a subjective question and depends on your goal and your risk profile.
If you’re young and don’t mind losing a percentage of your portfolio (in a bid of getting exponential returns), you can expose your portfolio to the crypto domain. Like I said, right now the market is more like speculation – you can enjoy some big spikes (or lose a lot).
But If you want to seriously begin investing and growing your wealth for a lifetime, you can start with mutual funds or even stock markets. They’re much better for a beginner. Here’s why I say so:
- Crypto Prices are Highly Volatile
- Most Price Movements Happen Because of a Few
- Unclear Regulations regarding Cryptocurrencies in India
Is Buying Bitcoins and Altcoins Legal in India?
Like other things related to cryptos, this is also a confusing territory.
RBIs and the government’s relationship with cryptocurrencies like Bitcoins, Ethereum and other altcoins have been like a game of tetris. There has always been an air of confusion regarding bitcoin ban and cryptocurrency regulations in India.
The first time RBI mentioned cryptocurrencies was in it’s press release back in 2013 where it gave general information saying that cryptocurrencies (virtual currencies) aren’t backed by any central bank and there isn’t any underlying asset, thus making them speculative.
Then, in 2017 RBI again outlined its concerns and one committee even compared cryptocurrencies to Ponzi schemes. So, till that time, cryptocurrencies were by and large a grey area.
In 2018 finally, after a circular by RBI led to a commotion in the banking circles where several exchanges (and crypto holders) were restricted from accessing the banking services. The circular asked banks not to provide services to exchanges and entities dealing in virtual currencies.
After this move, the exchange owners took the legal route and filed a petition in the Supreme Court to legitimize trade in cryptos.
On March 4th 2020, the Honorable Supreme Court finally gave its decision, writing off the ban by the RBI and terming it to be unconstitutional. The decision made trading, exchanging and holding cryptocurrencies in India totally legal, which led to a massive increase in the trade volume.
After the budget of 2022, cryptocurrency trading is legal in India and attracts 30% capital gain tax (equivalent to gambling/lottery income in India)
Where to Buy Bitcoins: Popular Platforms Allowing Crypto Investments?
There’s was no clear law that prevents people from buying bitcoins and other cryptocurrencies in India earlier. And the recent banking related issues with popular exchanges again raised questions about the legitimacy of the segment in India.
Some platforms were offering alternate payment methods (like support for a digital currency wallet) to buy cryptocurrencies like bitcoins from India. But before you proceed with buying cryptocurrencies, you should be clear that you can be barred from withdrawing funds (or not getting the option to withdraw) when you trade in cryptocurrencies.
Here are some platforms that allow you to buy cryptocurrencies like Bitcoin, Dogecoin, Ethereum, etc in India in 2022:
- WazirX: It is one of the most popular crypto exchanges in India. You can sign up and comply with KYC compliance to get started with buying cryptocurrencies from India. Please note that they’ve been facing issues like non-availability of payment options like UPI payments, server crashes and wrong price uploads of some crypto tokens in the last one month.
- CoinDCX: It is relatively a new entrant in the scene but has managed to ride the ‘dogecoin’ hype and issues with WazirX in the last one month. Users can sign up and start trading up to INR 10,000 without even completing their KYC on CoinDCX.
There are several other platforms like Binance and Coinbase which allow you to buy bitcoins from India. Coinbase even launched their first branch in India recently despite the uncertainty about the regulations in the future.
When you think about investing via any platform, just ensure that they have a solid backend team, proof of consistent operations and long term vision to support investors on their platforms. You can get all the information from their website or via user reviews on social media channels like Twitter or Reddit (shady websites that promise the world are often scams and you should stay away from them).
Can You Start an SIP in Bitcoin, Ethereum and Other Altcoins?
Despite the uncertainty, some investors might want to play the speculation game. But if you’re a small time investor (and each penny means something for you), you should learn to play it safe.
Remember, in one of my recent blogs, I shared about doing systematic investments via SIPs.
Well, you can start an SIP even in Bitcoin and Ethereum via a platform known as BitDroplet.
You can start small with daily SIPs of as low as INR 100 and create long term goals. This way you’ll be hedging against the risk and won’t be exposed to large churn in your capital due to massive negative price movements, which is a regular feature of the crypto trade market.
A Word of Caution about Investing in Cryptocurrencies
This advice applies to any kind of investment activity you do but specifically writing it down here was essential.
- NEVER invest borrowed money into an asset class which is volatile in nature.
- NEVER invest the money that puts food on your table in hopes of getting rich overnight.
- If you want to play with fire (which cryptos are at the moment), be prepared to suffer some burns. And if you can’t stay away from it.
Remember, there’s nothing like ‘overnight success’. The stories that you see online might not be covering the complete picture. So, always practice caution and limit your exposure to an amount that you can afford to lose, in case the market falls.
Frequently Asked Questions
- How do I start Investing in Cryptocurrencies?
The easiest way to start investing in cryptos like bitcoin from India is to sign up on a crypto exchange platform like CoinDCX, WazirX, Binance or Coinbase. You can even start from as low as INR 100/day using platforms like Bitdroplet which allows you to start an SIP in Bitcoin and Ethereum.
- Are There any Risks or Dangers of Investing in Crypto?
Cryptocurrency is a highly volatile asset class. One day it is on the roof and within hours it can tank down to the bottom. So, yes, there is a high risk of losing your wealth if you don’t know what you’re doing. Even the best of investors can’t predict price movements, so always practice caution and limit your risk to an amount you are ready to lose.
- How does investing in crypto affect taxes? How are the profits & losses treated in income tax?
At present, gains and losses in crypto investments are treated under capital gains in the Income Tax Act. Based on the period of holding of the cryptocurrency (which you buy from an exchange by converting real currency), you are liable to pay either a long term capital gain at the rate of 20% or a short term capital gain at individual slab rate in case of a profit. You can use cost of acquisition to take indexation benefits for calculating the long term capital gain.
No matter how shiny something may seem, only pick it up if you have the appetite to handle the consequences.
If you can handle the risks associated with a volatile and unregulated asset class, then cryptocurrencies can be your game for sure. So, if you’re planning to ride the hype, it might be the right time to catch some low hanging fruits in the form of popular crypto tokens.
But beware, only do this if you know what you’re doing, not because a social media influencer (or one of the world’s richest man) tweets about it. Remember, they can afford to lose, and maybe you can’t.