Here’s What You Need To Know Before Investing In Cryptocurrency

The high volatility of crypto coins has led to polarising views on whether crypto coins make for safe investment instruments

Here?s What You Need To Know Before Investing In Cryptocurrency

Bitcoin gave a return of over 800 per cent during the financial year 2020-21

From tech billionaire Elon Musk to actor Gwyneth Paltrow, everyone's talking about cryptocurrency and the craze it has generated among people about a future that is largely driven digitally. But does it really hold that much water as an investment instrument? The crypto coins do have a high rate of returns, but they are equally volatile and susceptible to frequent market crashes. So how does a person decide whether they should invest in these virtual coins that, Mr Musk says, could become the future currency of the world.

As of now, cryptocurrency is not a legal tender in India and most parts of the world, since the coins in circulation are predominantly privately created and there is a lack of clear understanding of the disruption these coins may cause. So, the Reserve Bank Of India (RBI) has said it is planning its own crypto coin and may launch it in a phased manner.

However, investing in cryptocurrency is not illegal in the country and many online exchanges are operating in the country – like CoinDCX and WazirX – that can be used for trading and investment in cryptocurrencies.

Benefits

Crypto coins often provide better returns than traditional investment tools. Many people made massive amounts of money when the crypto market was on a bull run during the first four months of this year. Consider this: Bitcoin gave a return of over 800 per cent during the financial year 2020-21. In April 2020, it was trading around $6,640 but by April this year, it had neared $65,000. Most other coins too witnessed a surge in prices, giving handsome returns to the investors.

Risks

In late April, the crypto market crashed, bringing down the values of most cryptocurrencies, Bitcoin slid under $30,000, but has recovered to $40,000. So the crypto coins are extremely volatile and investors carry the risk of losing money. Another drawback is cryptocurrency cannot be used as widely as fiat currency to pay for goods and services. The scalability of cryptocurrency-- including the likes of Bitcoin-- remains an area of concern. Also, they lack regulation by governments so there are trust issues.

The trade can be influenced by billionaire entrepreneurs and tech tycoons. Like Mr Musk had once supported Bitcoin but then switched his support to Dogecoin.

Security And Acceptance

Cryptocurrencies are highly secure, thanks to cryptography. There are no intermediaries involved in a transaction. Some countries are now warming up to the idea of these digital coins. El Salvador has announced plans to make it a legal tender. The corporate world is eager to make it mainstream as cryptocurrencies do not have regulatory oversight.