Just a few days ago, Bitcoin crossed $55,000. And very recently, Bitcoin once again reclaimed the market capitalisation of $1 trillion.
A simple search for Bitcoin price on Google shows this result:
That’s more than Rs 40 lakh! And it’s not a small amount for most Indians. You can even buy a small house using that amount (that is the price of just 1 Bitcoin) without taking any Rs 40 lakh home loan. Think about that. In fact, I have a friend in US from the tech space who holds a ‘few’ Bitcoins that he got several years back. Just converting the value of his coins in my head into Indian Rupees gives me goosebumps.
The token is up more than 500% in the past year. And there are varied opinions whether it’s a bubble-like the Tulipmania of the 1600s or on verge of an even bigger bull run in future. There is no sure way of knowing whether Bitcoin is inherently worthless or as many articles have pointed that it is heading (from currently $50,000) to eye-popping for $650,000! This is as per the J P Morgan’s Bitcoin price target. And if we were to convert that figure to INR terms, then it comes to a whopping Rs 4.7 crore. An amount that would give most Indians a real shot at attaining early retirement or financial independence in their lives.
One reason for this latest upmove is the increase in interest in cryptocurrencies from institutional players globally. Elon Musk, who is a strong proponent of the digital currencies, recently purchased $1.5 billion worth of Bitcoins, which has ignited mainstream interest in the digital currency.
But that’s not the only reason for the rise. The meteoric rise of Bitcoin prices can also be attributed to FOMO, i.e. Fear-Of-Missing-Out in investors. HNIs across the world are getting interested in making cryptos a part (even if a small one) of their large investment portfolios. And it’s not just the rich HNIs that are getting interested. Small common investors too are getting attracted to this new way of making money (at least this is the perception that recent investors have about this).
If not in India, then atleast in many developed nations, the cryptocurrency FOMO is catching up. And that is being fueled by billionaires showing interest in the space and regularly ‘tweeting’ about it publically.
Though volatility of different cryptocurrencies offers a greater possibility of generating meaningful gains, the fact is that it’s currently too volatile for comfort and appetite of common investors. Routinely losing 80-90% of your initial investment is not a sustainable investment strategy for small investors. Just remember that around in December of 2017, the price of Bitcoin was about $20,000 and then fell to almost $3,000 by the end of the next year. Now it’s above $55,000 again.
So technically and because of the currently inherent volatility of these cryptos, as long as you don’t bet everything you have on these, there is no doubt a possibility of making big gains without too much loss. But be cautious. This is theoretical way of thinking. There is a difference between possibilities and probabilities.
Indian crypto industry is also a bit volatile for comfort. And not from a price perspective but from a regulatory one. Recently announced Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to ban all private cryptocurrencies in India. In addition, it also provides for the creation of a legislative framework on an official digital currency of India. There is hope that the government will not eventually go to the extent of putting a blanket ban on all cryptocurrencies in India. Some middle path will be taken is the expectation as of now, and that’s reasonable.
In recent days, it has been announced that India will take a calibrated approach towards cryptocurrencies.
Do you know how many cryptocurrencies are there as of now? Though popular ones may be very few namely Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Ripple, Bitcoin Cash, XRP (XRP), Tether (USDT), EOS (EOS), etc., there are more than a few thousand cryptocurrencies in existence as of today.
Now comes the question that should you invest in different cryptocurrencies?
Or as many people feel that if cryptocurrencies are about to become expensive and popular in near future, then shouldn’t some of it be bought now?
I know that a lot of people who have missed the crypto boat may feel like they made a mistake and if they had participated in it, it would have been life-changing for their finances. But fact is that there are just way too many “what if’s” to think about as of now! So there is no point bothering yourself on those lines.
With that said, if one has to do it then doing a bit of buying and selling (if legally allowed by the government in India) of cryptocurrencies is fine. But getting involved too much in it is something that is not exactly advisable for most common investors. Sophisticated investors can still do their bit and figure out how to buy Bitcoin, how to buy Tether, how to buy Litecoin, how to buy Ethereum, how to buy Ripple and various other cryptocurrencies available for purchase across different online platforms.
It is said that one should only invest in something that one understands. And most people, sadly don’t understand cryptocurrencies or blockchain technology that it’s based on among other technical concepts. Currently, the cryptocurrencies have no underlying assets and primarily unregulated. And the price itself is too volatile and unpredictable. So investing a small amount that you would not be worried to lose is fine. But you shouldn’t bet your entire savings on Bitcoin or other cryptocurrencies just because of its stratospheric past returns.
So if not cryptos then what should investors do?
First, one should focus on their financial goals and how to reach them by investing properly in established asset classes like equity and debt. How can this be done? By getting yourself a proper financial plan made which tells you home much to invest, where to invest, for how long to invest and answers all tough questions that need to be asked to put a person’s financial life on track. And if after that you want to take some exposure to cryptocurrencies to try things out, then so be it. Go ahead and do so.