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

Even when the political uncertainties surrounding cryptocurrencies in India are far from over, some of them are worth considering for inclusion in one's investment portfolio, according to experts. However, under current circumstances, the maximum amount to invest in cryptocurrencies should not be more than 5-10% of a person's total investment portfolio. That should also be the amount you don't 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 clearer once the proper regulations are in place.

The government of India was expected to introduce a bill on cryptocurrencies during the winter session of Parliament, which has now concluded. According to recent reports, the Government can now introduce the bill to regulate cryptocurrencies and cryptocurrency exchanges during the next budget session of Parliament.

Should you consider including cryptocurrencies in your portfolio?

Responding to the question as to whether cryptocurrencies are worth considering as an asset in one's portfolio, Yash Upadhyay, Deputy Vice President, Head of Strategy at IIFL, said: “Once the government of India and SEBI begin to regulate the cryptocurrencies, I think it should definitely be one of the asset class investors should invest in. In terms of how much of your portfolio should be in crypto, it could be 5 to 10 percent. "

See: Manage Your Money: Crypto as an Asset Class

Non-real currency

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

“For (Bitcoin) to become a currency, it would have to go through a process of evolution. Bitcoin is still in the early stage of a currency's life cycle. Today it is more like a store of value, ”said Minal Thukral, executive vice president of growth and strategy at CoinDCX.

Key points to consider before investing

The experts shared several points that one should consider before investing in cryptocurrencies.

If someone is starting to invest in cryptocurrencies, Blue Chip crypto assets are something they should consider initially. These assets have a large market capitalization, which implies that when you want to sell your crypto holdings, there will be buyers available in the market for them, Yash said.

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

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

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

It is also important to choose a reliable exchange when starting crypto investment. Minal said that a trusted exchange would list a coin only after much scrutiny. This minimizes the risk to the investor.

Investors should also consider the limit on the number of available tokens of a crypto asset they wish to invest in. There are several crypto assets, such as Bitcoin, with a limited supply, but there are others such as Dogecoin for which there is no maximum limit. Therefore, an investor would eventually lose money if he invests in a crypto asset, hoping that its price will rise as high as Bitcoin.

In addition to the supply of coins, the experts further said that investors should consider the credibility of the coin and its founders before investing.

“Investment decisions are very personal in nature. One should do their own due diligence before investing ... Financial decisions driven by social media and FOMO should be avoided. One must look at factual information and fundamental analysis for a long-term purpose, ”said Minal.

What to expect in the future?

Experts said that it is currently difficult to predict how the crypto market will grow in the near future.

However, a crypto with good use cases is likely to benefit in the long run. “But investors should avoid making massive investments in cryptocurrencies today. If they believe in any crypto, they should do it in some SIP way, ”Yash suggested.

The best strategy to minimize volatility risks

Experts said that investing small amounts in crypto on a consistent basis would help beat volatility.

“Average your dollar costs, keep investing a sum each month, and keep doing it for months or years. This is the only way you can deal with volatility, ”said Minal.

Where to keep your cryptocurrency?

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

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

Minal said that transaction fees remain fixed regardless of how much you want to move from one wallet to another.

(Suggestions / recommendations about cryptocurrencies in this story are from the respective commentator. Financial Express Online assumes no responsibility for your advice. Consult your financial advisor before trading / investing in cryptocurrencies).