Investors and corporates have accepted cryptos as a potential hedge against uncertainty. Investment banks too have become interested in cryptos. In 2020, cryptos have become mainstream assets. More hedge fund investment will come to this asset class. There is speculation that the bitcoin currently at around $ 27000 could reach $ 300000. There are managed crypto services available at investment banks. A part of foreign trade is being done in cryptos.
Cryptos are not governed by the fundamentals, unlike the fiat currency. A fair value of fiat currency is assessed by the growth in the economy, the status of current and capital account, the rate of inflation and the status of trade. However, cryptos are governed by the demand and supply factors only. Exceptionally, stable coins are tied to a basket of fiat currencies.
Bitcoins are used for commercial transactions, much more than gold. Online gaming may promote bitcoin payments. Pokers too have adopted the currency. Cryptos are preferred in cross-country transactions.
India has yet to crystallize its policy on cryptos. The RBI banned crypto-trading (2018). However, SC overruled the RBI and allowed them (2020). Though cryptos have reached sky-high values, they can be traded in easily — by trading in fractions of the cryptos, as low as a millionth part.
Crypto taxation too will have to be settled — how to treat the capital gains. And if there are trading losses, can they be offset against profits?
There are a dozen crypto-currency exchanges in India. To illustrate, there are BuyUcoin, WazirX, ZebPay ( though based in Singapore, active in India), Giotuss, Unocoin. Rest of the exchanges are abroad. They may have Indian entities.
In spot trading, traders exchange cryptocurrencies instantly. Between a seller and buyer, an exchange is an intermediary. Money is deposited in the exchange. Exchange brings the buyer and seller together. There is OTC service at some exchange. In OTC service buyers buy the cryotocurrencies from the exchange. There are derivatives too at some exchanges. There is SIP or systematic investment plan.
Outside the exchange, there could be peer-to-peer trading. An invester starts with a small amount and after mastering the knowledge of cryptos and getting hands-on experience of trading, they can invest more.
Cryptos are stored either in personal wallet or with the exchange. Exchange storage is safer. Anyone above 18 is eligible to invest. You have to decide what percentage of your total investment should go to cryptocurrencies. Generally, it is kept at less than 10 per cent.
It is better to pay taxes on making gains on cryptocurrencies.
One can download an app, and complete the KYC. The banking details are given on the app. The wallet can be loaded initially by any mode of payment. Spot trading or direct from exchange trading can be done. Alternatively, you can place an order, and get the currency from traders. You have to store the currency you buy. Get acquainted with the amount of transaction fee the exchanges charge. There is a loading fee too.