Cryptocurrency is suitable for radical investors who understand investment risks. This is similar to investing in low-priced stocks, which may bring extremely high returns in a short period of time, or you may lose the entire amount invested in them.
Recently, cryptocurrency has aroused great interest among ordinary investors. But the extreme volatility makes them wonder whether cryptocurrencies are part of their portfolio. Personal finance experts advise not to jump on the crypto wagon when the prices of all crypto tokens lack regulatory clarity and any sense of stability. However, insiders in the crypto industry are keen to allocate a portion of one’s investment portfolio to cryptocurrencies.
According to cryptocurrency exchange data, nearly 1.5 million Indians hold cryptocurrency assets worth 150 billion rupees in India. In the past six months, the prices of many cryptocurrencies have skyrocketed. Bitcoin is the best performing asset class for the 2020-21 fiscal year, with a return rate of over 800%. However, cryptocurrencies are highly volatile and have recently plummeted by 30% in just one week.
As the debate on the pros and cons of investing in cryptocurrencies continues, our sources talked with several experts to understand whether cryptocurrencies should be part of investors’ personal financial investment portfolios.
Balwant Jain, a tax and investment expert, advised against investing in cryptocurrencies. Jain told online that it (cryptocurrency) has neither tangible assets nor sovereign guarantees, so it is recommended not to invest.
Finway FSC CEO and founder Rachit Chawla also said that due to its ambiguity, he does not recommend including cryptocurrencies in investment portfolios. I currently do not recommend using cryptocurrency as part of a personal wealth management portfolio because there is a lot of ambiguity surrounding it. The Reserve Bank of India does not allow investors to invest money and purchase this asset class is one thing, but what is the exit? There is no policy framework, especially for a country like India managed by the Reserve Bank of India, Chawla said.
Too Volatile To Be Called An Asset
Without any framework, such an asset class will become very difficult, but there are still people who want to buy it, which will limit themselves to using only 1% to 2% of their total liquid investment portfolio. That’s it because cryptocurrencies are inherently too unstable. Anything that rises by 10% in a day and falls by 10% in a day should not be considered an asset. It is too volatile to be called an asset, he added.
What Should You Pay Attention To When You Want To Invest?
Despite the obvious risks of crypto investment, the temptation of an advertising blitz, word-of-mouth campaigns, and fast returns are driving many people to turn to crypto investment. The founder, and CEO of ClearTax, Archit Gupta, shared the key points you should consider before using cryptocurrencies as part of your personal financial portfolio.
1. Cryptocurrency is suitable for radical investors who understand investment risks. This is similar to investing in low-priced stocks, it may bring extremely high returns in a short period of time, or you may lose the entire amount invested in them.
2. Cryptocurrency is not legal tender in India. You can wait until regulation and taxation become clear before you incorporate cryptocurrencies into your personal financial portfolio. In some cases, the lack of regulation of gold loans and microfinance led to crises.
3. Individuals who are new to cryptocurrency can invest through the SIP (systematic investment plan). Over time, it will stagger investments in cryptocurrencies, thereby reducing purchase costs.
4. Individuals who must invest in cryptocurrencies can allocate 1%-2% of their portfolio to them. You must never borrow and invest in cryptocurrency for your personal financial investment portfolio. Investing in cryptocurrencies is similar to penny stocks, in which you can invest funds (play money) that can withstand losses.
Diversification Is The Key To Building Wealth
The co-founder, and CEO of the crypto trading platform Mudrex, Edul Patel, gave a “resounding agreement” to investing in cryptocurrencies. He said: ‘Diversification is the key to long-term wealth accumulation. Wealth accumulation needs to be seen as a marathon, not a sprint. Cryptocurrency, as an asset class, provides much-needed alpha for investment portfolios, while also acting as a moat’.
Patel further appended: All investors need to consider this fact and invest a portion of their funds in cryptocurrencies with long-term prospects. Considering volatility, most large investors currently allocate 3-5% of their net assets as assets category of cryptocurrencies, and this number continues to grow.