The rising attraction of cryptocurrency worldwide has similarly impacted Indians as well. According to Nasscom, cryptocurrency investors have witnessed a significant 1,100% growth between 2022 and 2023. This remarkable transformation is evidence of heightened interest in the sphere by the Indian populace, but it comes with a critical question - should individuals who were not part of the recent cryptocurrency growth contemplate investing in cryptocurrencies?
Potential investors must research the potential advantages and disadvantages associated with cryptocurrency investment before deciding to jump into it. Some of these assets intrigue the investors based on the developers’ mission statement, whereas alternative investors favour postulating over price action and volatility of their preferred digital assets. Investing in cryptocurrencies is often intricate, but all of these assets are highly dissimilar in nature. Beginners must always be prepared to lose their capital, which can be avoided with appropriate prior analysis and due diligence.
What are the potential benefits of investing in crypto?
The first benefit of crypto investments that comes to mind is the significant growth potential. Bitcoin, the largest cryptocurrency globally, highlights this potential by its remarkable returns over the years. Investors must keep in mind that previous returns do not guarantee future returns, but in 2021, the value of Bitcoin soared well over 60%, demonstrating the possibility of serious returns. Meanwhile, in 2022 it plummeted by more than 70%. Since then, the value of Bitcoin has increased almost 49.2% to 2024. This highlights the inherent volatility associated with this particular asset class.
Crypto Tracker
Cryptocurrencies are part of decentralised networks, meaning they often offer autonomy and enhanced transparency. Transactions of these assets are recorded on blockchains which promote confidence and decrease the dependency on conventional financial tools. Crypto transactions are also faster and often cheaper than traditional bank transfers, especially when used internationally. This is made possible since cryptocurrencies lack intermediaries and the fees associated with them. According to the World Bank, international transactions on average were an astonishing 6.3% in 2022, which demonstrates the economic nature of crypto in binational transactions.
Many investors also point out cryptocurrencies like Bitcoin as a promising hedge against inflation because of its finite supply of 21 million coins. Theoretically, this allows Bitcoin to be impervious to inflation, which can take the value of conventional currencies over certain periods.
What are the potential risks associated with cryptocurrencies?
Volatility is synonymous with cryptocurrencies and market fluctuations are common. The significant volatility is often unsettling for investors and holds the potential to register complete loss without meticulous supervision. Furthermore, cryptocurrencies often fall victim to hacking and cyberattacks that can hand a significant blow to investors’ aspirations. Cyberattacks resulted in the theft of $2 billion worth of cryptocurrencies in 2022 throughout the world, highlighting the safety issues correlated with these assets.
Virtual digital assets (VDA) like cryptocurrencies do not have legal frameworks that regulate them presently. However, governments around the world are currently working towards establishing a global framework. This unpredictability holds the potential to create difficulties for investors and it's pivotal to remain vigilant about developments regarding regulations and be ready for changes that can affect the market.
Another challenge associated with cryptocurrencies is their slow adoption and limited usage in the real world. In countries like India, individuals cannot use cryptocurrencies to purchase products, which reduces their value proposition in comparison with conventional asset classes.
Crucial factors to consider before crypto investment
Before deciding to invest in cryptocurrencies, investors must contemplate several things. Understanding their risk tolerance, investment goals, duration of their investment and knowledge in the domain are of paramount importance before investing in VDAs. The fact that cryptocurrencies are a comparatively new mode of investment and come with unique advantages and risks should be considered before being influenced by public opinion. The Indian cryptocurrency market has been flourishing, which means beginning at a modest position and cautiously expanding the portfolio enables investors to become competent and discover the market dynamics with ease.
(Attributed to Roshan Aslam, CO-Founder & CEO of GoSats)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
FAQs
Cryptocurrency is an extremely volatile investment
Is investing in crypto worth the risk? ›
The truth is that cryptocurrency is an extremely volatile asset. Investors need to understand that owning crypto involves taking on a great deal of risk in their portfolios. But for investors who understand how to manage risk, crypto could present great opportunities.
What to consider before investing in cryptocurrency? ›
Most financial experts recommend limiting crypto exposure to less than 5% of your total portfolio. Crypto is considered a high-risk asset class. Limiting allocation helps manage overall volatility and risk. Those new to crypto investing may start with 1% to 2% as an introduction.
Why is investing in crypto important? ›
Inflation Protection
Many folks see cryptocurrency as offering protection against inflation. Bitcoin has a hard cap on the whole number of coins that will ever be minted. For example, as the growth of the money supply overtakes the growth in the supply of Bitcoin, the price of Bitcoin shall increase.
What are the benefits of crypto? ›
The advantages of cryptocurrencies include cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure. The disadvantages of cryptocurrencies include their price volatility, high energy consumption for mining activities, and use in criminal activities.
Is it good to buy crypto now? ›
Investor takeaway
For that reason, while current market conditions are favorable for anyone considering buying Bitcoin, it is an asset you should purchase only at your own risk. Because while Bitcoin may have the potential for significant returns, you may also lose most of your investment.
Is it a good idea to do crypto? ›
It's not a good idea to invest in cryptocurrency unless investors are prepared to lose all the money they have invested. This is because cryptocurrency is an extremely high risk and complex investment, and investors are unlikely to be protected if something goes wrong.
Should I invest in crypto or stocks? ›
Yes, typically cryptocurrencies are considered riskier than stocks due to their high volatility, less regulatory oversight, and their relative newness. However, while stocks are generally more stable, they are not immune to risks such as market downturns or company-specific issues.
When to invest in crypto? ›
Experts say the best time of day to buy cryptocurrency is early in the morning before the NYSE opens since values tend to rise as the day goes on. Be sure to pay attention to slight daily fluctuations across different cryptocurrencies since trends will vary from coin to coin.
Is cryptocurrency safe? ›
Cryptocurrencies may be more secure than other types of currency, and riskier in others. Before buying or selling crypto, you'll want to be aware of potential scams and other pitfalls to look out for.
Holdings in online “wallets” are not insured by the government like U.S. bank deposits are. A cryptocurrency's value can change constantly and dramatically. An investment that may be worth thousands of dollars today could be worth only hundreds tomorrow.
What is the biggest problem with crypto? ›
Scalability: As the number of transactions increases, many blockchain networks struggle to scale effectively. Innovations like the Lightning Network for Bitcoin and sharding for Ethereum are being developed to address these challenges. ⚖️📈 Market Volatility: Cryptocurrencies are notorious for their price volatility.
What are the disadvantages of crypto? ›
Cons: Cryptocurrencies often see extreme price fluctuations. There's a steep learning curve, and it can be tough to scale widely. Despite the potential for high rewards, it's still uncertain whether cryptocurrencies will stay viable in the long term.
Is cryptocurrency good or bad? ›
Cryptocurrency is a relatively risky investment, no matter which way you slice it. Generally speaking, high-risk investments should make up a small part of your overall portfolio — one common guideline is no more than 10%.
How to spot a crypto scammer? ›
Besides trolling for victims on social media or messaging apps, here are 10 other telltale signs an online trading platform is a fraud:
- It isn't registered to trade forex, futures, or options.
- Trades crypto, but not registered as a money service business.
- No physical address, it's clearly fake, or offshore.
Cryptocurrency is a digital payment system that doesn't rely on banks to verify transactions. It's a peer-to-peer system that can enable anyone anywhere to send and receive payments.
Is your money safe in crypto? ›
Only invest money you can afford to lose. There are no guarantees in any investment, be it stocks or cryptocurrencies. However, since cryptocurrencies are so new and uncertain, they carry more risk than traditional investments. The wisest thing to do is to invest only what you can afford to lose.
Is it safer to invest in stocks or crypto? ›
Yes, typically cryptocurrencies are considered riskier than stocks due to their high volatility, less regulatory oversight, and their relative newness. However, while stocks are generally more stable, they are not immune to risks such as market downturns or company-specific issues.
Why is crypto a high risk investment? ›
Holdings in online “wallets” are not insured by the government like U.S. bank deposits are. A cryptocurrency's value can change constantly and dramatically. An investment that may be worth thousands of dollars today could be worth only hundreds tomorrow.
Is crypto safer than banks? ›
Crypto is not regulated like stocks or insured like real money in banks. Crypto's high risks can offer big rewards or huge losses.
