To the uninformed, the cryptocurrency realm can be a bit confusing. But these digital coins have seen mammoth growth in the past few years, especially in Covid-hit 2020. Ease of access, added security and an overall informed crypto atmosphere saw millions of new investors jump onto the crypto bandwagon.
Big banks such as JP Morgan and Morgan Stanley are also eyeing Bitcoin as a potential investment and trading currency. Experts at JP Morgan have written that “in a multi-asset portfolio, investors can likely add up to 1 per cent of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio.”
India, too, saw a pool of new investors expand their portfolio to cryptos, especially after the lockdown. However, a majority of Indian investors are still hesitant about crypto investments, primarily due to scams, limited information and certain myths surrounding the currency.
Myth 1: They are imaginary assets. Cryptocurrencies, unlike traditional currencies, do not exist in physical form but only digitally. However, this does not connote that the currency is imaginary or unusable in the real world. Like stocks, which are stored in digital accounts, crypto coins are also stored in wallets.
Moreover, much like every other traditional currency, cryptocurrency can and is being used to pay for goods and services worldwide. Corporates such as Microsoft, AT&T, Burger King, Pizza Hut and Wikipedia, among others, have started accepting cryptocurrencies in many countries.
Myth 2: You need to own crypto to trade t. What most crypto investors do not know is that they need not buy a cryptocurrency to trade it. There is a big difference between trading a Bitcoin and owning one. Most crypto traders do not purchase cryptocurrencies, but trade on the prices without holding the coin. Due to the high volatility and a round-the-clock active market, crypto trading provides opportunities to trade on price fluctuations.
Myth 3: They are all the same. Not all cryptocurrencies are the same, each one is created with a specific set of goals in mind. For example, Bitcoin was made to build a cashless system. Ethereum was designed to be a blockchain platform on which other applications could be built on, and Polkadot was created to implement interoperable projects that hoped to build on Ethereum.
While these are only some of the more well-known cryptocurrencies, a plethora of small-scale cryptos are revolutionising fintech.
Myth 4: They are not reliable investments. With a market cap of $1.5 trillion and growing, these cryptocurrencies have time and again shown that they are a reliable investment option. However, much like any other financial asset that is traded, the point of market entry and exit matters.
The market is open 24×7, so investors get more opportunities to book profits. As the prices increase handsomely, long-term investors, too, are growing in numbers as trust in cryptocurrencies increases.
Myth 5: They will get banned and will be unusable. India seems inclined towards imposing a blanket ban on cryptocurrencies and introducing a digital rupee under the RBI. However, there is no clear timeline as to when the government will impose a ban, if at all.
Even if a ban is imposed, cryptocurrencies will still be a valid mode of payment on many global websites, making it a safe bet. The digital rupee, too, will be a cryptocurrency, which will help people make payments for goods and services, both offline and online.
The nation-wide lockdown pushed Indian investors to expand their portfolio and explore alternatives to traditional investments. Many first-time crypto investors joined with only a handful of long-time crypto believers to build a new crypto hub in the country.
While a blanket ban may occur in the future, most Indian exchanges are still reporting increased number of investors. Profit or loss may be market-dependent, but cryptocurrencies have definitely proven to be a reliable investment and are expected to rise even more. The Indian investor, hence, should not pay heed to these myths and start exploring new investment options in cryptocurrencies.
The writer is Co-founder and CEO, Mudrex