The craze for cryptocurrencies is on the rise across the world and India is no exception. It is, in fact, among the top five countries in terms of crypto-adoption, according to blockchain analytics firm Chinalysis. Young investors, in particular, are attracted to cryptocurrencies as an asset class—a trend that is consistent across the globe. According to Finder’s Cryptocurrency Report 2021, which surveyed a total of 47,000 individuals across the world, 40 per cent of crypto users across the world are in the 18-34 years age bracket and 20 per cent users are in the 35-44 years bracket.
So, what is it that is attracting young investors towards cryptocurrencies? According to Gurpreet Singh Mehta, a 33-year-old corporate professional from Jammu and Kashmir, it’s the hype surrounding the crypto market, along with the multi-fold returns they deliver.
“I am new to crypto investing; I started just six months ago. It has been a roller-coaster ride—very exciting but risky as well,” says Mehta, who also invests in stock markets.
According to Vikram Subburaj, CEO and co-founder of Giottus Cryptocurrency Exchange, cryptocurrencies, especially Bitcoin, have come a long way since their inception. The growing mainstream adoption of Bitcoin has had a tremendous positive effect on its price, he says.
“Tesla, Facebook, PayPal, Visa, Mastercard and Wall Street stalwarts like JP Morgan have either invested or have already started building technologies to drive the next wave of crypto adoption. Institutional players, hedge fund managers and even family offices have shown urgency to hedge their portfolio against inflation, even as central banks around the world pump trillions of dollars as monetary stimulus to tackle the crisis posed by Covid,” says Subburaj.
Be it Bitcoin, Dogecoin or Ethereum, the prices as well as the number of transactions see a major spike or dip every time a celebrity tweets about it. For example, when Tesla’s Elon Musk put up a cryptic tweet with a picture of a rocket and the word ‘Doge’ in a single thread, the price of the coin soared 65 per cent in just 24 hours.
Hype And Homework
Shankha Shubhra Maity, a student from Kolkata who is making an effort to understand crypto-investing properly, says most young investors do not understand the technology behind it, but are influenced by people like Tesla’s Musk or Twitter’s Jack Dorsey. However, he also believes that for people who do understand, it’s hard to ignore the potential of cryptocurrencies.
“The decentralized nature takes the banks and governments out of the equation. The currencies’ fees are the lowest by far, and transactions take between 15 minutes and an hour instead of the minimum of two days by most banks and the never-ending fees. Their prices are set by the free market and don’t suffer from inflation. (Investing in them) can lead to high returns if done right. Some cryptocurrencies are limited in supply; there are ones in infinite supply; and some are backed by fiat currencies like the US dollar. There is something for everybody. And now that big businesses are taking it seriously, cryptocurrency is here to stay,” says Maity. The 22-year-old also invests in stocks, exchange-traded funds and mutual funds, and plans to invest in real estate in the future.
Maity has been investing in cryptocurrencies for a year-and-a-half, but has started taking it more seriously only recently. The reason: “Big businesses.” He was not an early investor because the Bitcoin crash in January 2018 made him sceptical. Prices then rose above $20,000 but the subsequent sell-off led to a crash.
The tipping point for Maity was when companies started buying different forms of cryptocurrency as an investment or because they wanted to accept it in the future. “Companies like MicroStrategy, Blackrock and ARK Investments began investing in them and have plans to invest more. Now, everyone from fast-food companies like McDonald’s to tech companies like Microsoft and sports clubs like the Dallas Mavericks have invested in cryptocurrency,” he says, adding that the interest shown by large companies is a major indicator of a strong future for cryptocurrencies.
In India, the cryptocurrency ecosystem is still at a nascent stage. The pandemic brought a tsunami of digital disruption as mobile phones became the lifeline for many during the lockdowns. Cryptos became an instrument of choice due to three fundamental properties–they are electronic; their ownership is democratic; and they allow peer-to-peer exchange. Several exchanges buy and sell cryptos and the investor needs to pay a fee for trading. The charges vary across the exchanges and the currencies being traded.
Ashish Singhal, CEO of cryptocurrency exchange CoinSwitch Kuber, says there are different types of cryptocurrencies to choose from and various factors differentiate them. “One should invest in crypto based on their risk appetite because of the volatility involved,” he says. Singhal, however, adds that volatility is a part of market building, and exists in every market. For example, gold was highly volatile in the initial period of the pandemic, he says.
Maity agrees that the asset is volatile. “You could be in the red before you go to bed and in the green when you wake up. The security side of things helps. I don’t have to keep them (cryptocurrency) on the exchange. I can move them to a hardware wallet at any time,” he adds.
The asset’s past performance has been exceptional, says Subburaj, but it is important to understand the future prospects before deciding to invest. Cryptos that leverage Decentralised Finance (or DeFi; a term used to represent blockchain applications and projects) or democratise data (the belief that everyone has access to data and there are no gatekeepers or bottlenecks at gateways) may be game-changers in the near future. “If you believe in these two use cases, and if the past is an indication, cryptocurrencies will continue to outperform all other assets. We suggest not to have more than 20 per cent of your portfolio in cryptocurrencies at the beginning. This can vary depending on your risk appetite,” he advises.
Before investing, consider factors such as a crypto’s technological purpose and fundamentals, and the projects happening around it, adds Subbarai. For example, Bitcoin and Litecoin are standalone cryptocurrencies but Ether and Ripple are a part of wider networks and expanded applications. Hence, the latter’s value is determined by the projects going around them. Ethereum has many DeFi projects built around it. “When these applications are adopted by mainstream businesses, the demand for the underlying currency may surge,” says Subbarai.
“There are over 10,000 cryptocurrencies to choose from; not all would survive. And not every one that survives would give the same kind of returns. Investors must do their research,” he concludes.
It’s no longer fun and games; cryptocurrencies are serious business and young investors must treat it as such.
vishav@outlookindia.com