Managing Cryptocurrency: What should investors do in a volatile market amid policy

Experts said investing small amounts in crypto consistently over a long period would help beat volatility.

Even as policy uncertainties around cryptocurrency in India are far from over, some of them are worth considering for including in one’s investment portfolio, according to experts. However, in current circumstances, the maximum amount to invest in crypto should not be more than 5-10% of one’s total investment portfolio. That too should be the amount s/he may not regret losing.

Participating in Financialexpress.com’s “Manage your Money” webinar on “Crypto as an Asset Class” on Wednesday (December 22, 2021), experts opined that investment opportunities in the cryptocurrency market would become more clear once proper regulations are in place.

The Government of India was expected to introduce a bill on cryptocurrency during the now-concluded Winter Session of Parliament. As per recent reports, the Government may now bring the bill to regulate cryptocurrency and crypto exchanges during the upcoming Budget Session of Parliament.

Should you consider including cryptocurrency in your portfolio?

Responding to the question on whether cryptos are worth considering as an asset in one’s portfolio, Yash Upadhyay, Deputy VP, Head of Strategy at IIFL, said, “Once the Government of India and SEBI starts regulating cryptocurrencies, I think definitely it should be one of the asset class in which investors should invest. In terms of how much of your portfolio should be in crypto, it could be 5-10 per cent,” 

Watch: Manage Your Money: Crypto As An Asset Class

Not actual currency

Experts agreed that crypto assets are far from becoming actual currencies. They may be considered as a store of value. Even for the most popular crypto asset – Bitcoin, it would take a long time to become an actual mode of exchange, or currency as we call it in present-day usage.

“For it (Bitcoin) to become a currency, it would have to go through an evolution process. Bitcoin is still at the early stage of life cycle of a currency. Today it is more like a store of value,” said Minal Thukral, EVP, Growth and Strategy at CoinDCX.

Key points to consider before investing

Experts shared several points one should look at before investing in cryptocurrency.

If someone is starting into crypto investing, Blue Chip crypto assets are something s/he should look at initially. These assets have a large market cap, implying when you wish to sell your crypto holdings, there would be buyers available in the market for them, said Yash.

Investors should also look at the use cases associated with the crypto assets, try to understand the problem they are trying to solve and its potential. For this they should read the White Paper and avoid investing based on Reddit, Twitter, or social media influencer’s statements, experts said.

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To know the potential of your crypto investment, Minal suggested it is important to understand why you are investing in the first place. “First understand why you are investing? If your decision is not well-researched and more about making quick gains, you will be more likely to lose money,” Minal said.

“Come into crypto with a long term view. Start with 2-5% initially, understand the potential and keep investing regularly,” he added.

It is also important to choose a trusted exchange while starting crypto investment. Minal said a trusted exchange would list a coin only after a lot of examination. This minimises the risk for the investor.

Investors should also look at the limit on the number of available tokens of a crypto asset in which they want to invest. There are several crypto assets, like Bitcoin, with a limited supply but then there are some others like Dogecoin for which there is no maximum limit. So an investor would eventually lose money if they invest in a crypto asset, hoping its price would go as high as Bitcoin.

Apart from coin supply, experts further said investors should look at the credibility of the coin and its founders before investing.

“Investment decisions are very personal in nature. One should do own due diligence before investing…Social and FOMO led financial decisions should be avoided. One should look at the objective information and fundamental analysis for long term purpose,” said Minal.

What to expect in future?

Experts said that at present, it is difficult to predict how the crypto market would grow in near future.

However, a crypto with good use cases will likely gain in the long term. “But investors should avoid bulk investing in crypto at present. If they believe in some crypto, they should do that in some SIP kind of way,” suggested Yash.

Best strategy to minimise volatility risks

Experts said investing small amounts in crypto consistently would help beat volatility.

“Do dollar-cost averaging, keep investing a sum every month and keep doing that for months or years. This is the only way you can take care of volatility,” said Minal.

Where to hold your cryptocurrency?

According to Minal, if you are investing for a very long term, you may look at hardware wallets to store your crypto assets. However, if investing for the short term, or in small amounts, a trusted exchange would be a better option.

If the portfolio is small, there is no need to move crypto assets from an exchange wallet to a hardware wallet. As a certain fee is required to be paid. However, if moving a large sum, charges would not be a big hindrance.

Minal said the transaction charges remain fixed, irrespective of the amount you want to move from one wallet to another. 

(The suggestions/recommendations around cryptocurrencies in this story are by the respective commentator. Financial Express Online does not bear any responsibility for their advice. Please consult your financial advisor before dealing/investing in cryptocurrencies.)

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