Even bluechip cryptocurrencies like it Bitcoin and Ethereum was up 35-40% in 2021. But the trajectory was not a straight line. Bitcoin prices spiked to touch Rs 51 lakh in April, before falling sharply by more than 50% in May-June when Elon Musk tweeted his concerns about the impact on the environment and China cracked down on cryptocurrency trading. . As terrified investors rushed to sell, the prices of some cryptocurrencies fell between 30% and 40% in hours. Buyers returned in September and the price of Bitcoin crossed Rs 54 lakh again in November. It has now settled at Rs 39.91 lakh, roughly 32% more than it was at the beginning of the year.
What to expect in 2022
Much will depend on government policies. China, the largest in the world cryptocurrency market, banned all transactions in September. Analysts say that as blockchain technology reaches wider use, this stance will only isolate China from the rest of the world. In India, the government has worked on legislation to regulate the use and trading of cryptocurrencies. The bill on cryptocurrencies and regulation of the official digital currency would be debated during the winter session of Parliament, but the uproar over the agricultural bills prevented its introduction. The bill "seeks to ban all private cryptocurrencies in India. It allows certain exceptions to promote the underlying technology and its uses."
Basic rules to follow
Although the bill was not debated in Parliament, interest among investors has not waned. However, cryptocurrencies are a new class of investment, with very little data for fundamental analysis. Here are some basic rules to keep in mind when entering this high-risk field.
Invest small amounts: Many cryptocurrencies have risen 5,000-6,000% in recent months. But don't get carried away by these numbers. As in the case of any other investment, one should only invest what one is willing to lose. Even if you have a high appetite for risk, don't put more than 10-15% of your overall portfolio in cryptocurrencies.
Learn to withstand extreme volatility: This is a high risk, high reward game and investors need to be able to digest the high volatility. As the May crash showed, an overnight drop of 70-80% is a possibility. Note that even a bluechip like Bitcoin is down 25% from its November high of Rs 54 lakh. Enter this market only if you can withstand extreme variations.
Use a reliable platform: The crypto space is unregulated in India and new teams are emerging every day. Invest through an established and trusted platform so your money doesn't get bogged down if there is a regulatory setback or the sponsoring company goes under. Investing through an overseas platform may require greater compliance on the tax front.
Don't act on tips: The crypto space suffers from a serious lack of credible data. Investors rely heavily on unverified information on social media. Crypto analysts with their own style create WhatsApp groups full of accomplices who attest to their accuracy. These analysts catch gullible investors, first charging a fee for tips and then using them for their pump and dump operations.
Focus on the blue tiles: Like the stock markets, the cryptocurrency market also has bluechips, mid-caps, and pennies. Don't be tempted to buy dark coins just because they are so cheap. Larger coins can be more expensive but they are more stable. You can buy in fractions, so don't worry about the price. Bitcoin and Ethereum are the blue chips of the crypto space and are driving overall market sentiment.
