Several novice investors rush towards the newer cryptos aspiring to become rich quickly. But most of these cryptos fail, and investors lose their hard-earned money.
By Edul Patel
Cryptocurrencies have brought a fundamental shift in investor mindset. Investors are looking at cryptos as a much-needed diversification to their portfolios. And with the exponential growth of startups surrounding the crypto ecosystem, investors today have the convenience and the resources to do proper research and invest.
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How to start investing in cryptocurrency?
Finding a crypto-currency exchange is the first step to start investing in crypto. Cryptocurrency trading happens directly through the exchanges. Some of the most popular ones are Binance, Coinbase, OKEx, Deribit, Huobi, FTX, etc.
The second step is to identify the cryptocurrencies that you wish to invest in. There are more than 10,000 crypto tokens available in the markets today. Several novice investors rush towards the newer cryptos aspiring to become rich quickly. But most of these cryptos fail, and investors lose their hard-earned money. So, it is prudent to research before putting your hard-earned money into something without having proper knowledge.
Reasons why cryptocurrency should be a part of your portfolio
1. Cryptos add a much-needed diversification
Investing heavily in any one particular asset class can be a risky affair. One need not look beyond the coronavirus pandemic to understand this point. The S&P 500 tanked heavily, and so did real estate. Bond yields fell, and even small-term mutual funds were becoming illiquid. Gold, which is usually considered the safest asset class, gave 33% returns during the pandemic. Bitcoin’s returns were double that of Gold during the same period. Cryptocurrencies could offer good diversity as they are perceived as a universal medium of value.
2. Increased acceptance from institutional investors
Financial institutions like Goldman Sachs and BlackRock have shown interest in cryptos. Several institutions have recently submitted multiple ETF approval proposals to the Securities Exchange Commission (SEC). Crypto basket funds that act similar to ETFs may make it easier for retail investors to gain exposure.
3. Hedge against inflation
Inflation has always been a detrimental factor to building wealth. As central banks around the world are printing money recklessly, the risk of inflation increases multiple times. Traditionally, precious metals were considered to be a hedge against inflation. But, cryptocurrencies like Bitcoin also fill the same role because there is a finite amount of it in the crypto market.
4. Higher trading and liquidity volume
One common concern among the working class retail traders with respect to the equity markets was the time in which the markets remained open. On the other hand, the crypto markets remain open 24*7. Popular coins and the top exchanges have sufficient liquidity, making the trading hassle-free.
5. Decentralized finance has a place in the future
DeFi is an industry that uses blockchain technology and benefits in greater access, faster transactions, and in some cases, lower transaction costs. Some blockchains support the smart contracts needed to develop and operate a decentralized application- Ethereum being the most popular. It also has a growing list of healthy competitors, including Binance Smart Chain (BLC) and Polkadot.
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Current status of crypto trading in India
Different estimates indicate that more than 15 million Indians are currently investing in cryptocurrencies, it is not banned in the country, and however the trading is not regulated. It is advised that investors should do their due diligence before investing or trading in cryptocurrencies.
There was a major boom during the height of the pandemic when people understood the importance of a secondary source of income. That boom created awareness among people about cryptocurrencies. Several investors who were initially reluctant to invest in cryptos started doing so. People skilled in technical analysis are applying similar trading setups in the crypto markets, which they would otherwise do in the stock markets. With the government’s plan to launch the Central Bank Digital Currencies, the awareness and adoption of cryptocurrencies will only increase.
