BENGALURU: Bitcoin may be the latest asset you can’t wait to get your hands on, considering it has rallied 400 per cent in the past year, but experts counsel prospective investors to exercise caution and consider the old school way of investment: Don’t put all your eggs in the same basket. In India, the user base of crypto traders has grown 2-3-fold since the onset of the pandemic, with exchanges claiming to have added millions of monthly active users on their platforms.
Surprisingly, since January 2021, it hasn’t been just the the millennial group but also people above 45 years of age who have shown keen interest in digital assets, especially after the Supreme Court of India overturned the RBI ban on cryptocurrencies last year. As for Bitcoin, analysts at JP Morgan wrote in a note on Wednesday that institutional investors are ditching Bitcoin for gold in a “dramatic change of fund flows”. This was after the most valued digital token fell by almost 30 per cent to touch $30,681 in just a week. However, within the next 24 hours, the price had again stabilized at around $42,274. In April, Bitcoin had touched an all-time high of $64,863.
“The bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors. Over the past month, bitcoin futures markets experienced their steepest and more sustained liquidation since the bitcoin ascent started last October.Institutions are unwinding Bitcoin futures and building up long positions in gold futures. And bitcoin funds are also seeing a steady deterioration, with four-week flow turning negative for the first time,” JP Morgan wrote.
Analysts pointed out that at the same time, cash has been heading to gold ETFs, reversing the pattern of Q4 2020 and the start of this year. The reason, JP Morgan says, could be to seek stability in assets like traditional gold. A top executive at a wealth tech firm based in Bengaluru agreed that the volatility in the Bitcoin and Ethereum price over the past week will make a lot of investors re-think investments in digital assets in the long-term. “We saw exchanges crashing this week, because people were buying dips, there was panic selling which started with the Tesla CEOs tweets and then China central bank’s ban.
At the moment, social media is largely driving the prices of digital assets, leading to so much volatility. The queries for investment advice on crypto have grown manifold, but we do maintain that this is a high-risk asset and the best strategy would be to include Bitcoin in a small portion of your portfolio, in addition to MFs, gold, real estate, etc. Getting caught in the crypto fad is something investors should be wary of, since those who sold their tokens last week lost 100 per cent of their investment capital,” the senior executive said.
In India, the regulatory uncertainty on virtual currency is also a matter of concern, since SEBI hasn’t yet outlined the trading regulations for these assets—especially making key classifications of cryptocurrencies as investment products, securities, or commodities. The RBI’s tough stance doesn’t help either. While amateur investors remain a confused lot, more seasoned ones observe that the digital assets are here to stay. Bengaluru-based networking engineer and a long term crypto investor, Fouad Farooq, said that from an investor’s perspective, the higher the volatility, the higher the risk, and eventually, the higher will be the profit/loss.
“There will always be crashes and sudden gains, but one needs to see it holistically. Bitcoin is up multiple times compared to what it was a year back. Ethereum, Ripple and multiple currencies are on the rise. Banks do realize the power of cryptocurrency but are working under the influence of the regulators to block usage of crypto. The crypto exchanges have realized this and have moved their operations outside India. But crypto is here to stay. These are just minor hiccups on the way,” he claimed.
Nischal Shetty, CEO and founder of India’s largest crypto exchange, WazirX, said that investors shouldn’t buy everything in one day and should ideally monitor the price transition closely. “Investors need to distribute their buying, and closely follow market movement for at least the next one week,” he noted. A policy paper ‘The Path Forward for Digital Assets Adoption in India’ by Ripple suggests that the country should adopt digital asset taxonomy consistent with global practice by providing clarity to the legal character of digital assets and empowering SEBI to license, regulate, and supervise digital asset service providers.
“Now is the time for Indian policymakers to take the forward-looking approach that many other jurisdictions in Asia, such as Singapore and Japan, have taken. Responsible usage of blockchain technology and digital assets can introduce tremendous potential to the Indian economy,” said Navin Gupta, MD, South Asia & MENA, Ripple.
INDIA: CRYPTO SNAPSHOT
10 million Cryptocurrency holders
$1 billion Total asset holding
$300+Startups dealing with crypto
$350-500 m Daily trading volume