Cryptos — How Cryptic (to invest or not to invest is the question???)


Cryptos — How Cryptic (to invest or not to invest is the question???)

Hey guys, happy to be back here to discuss the enigma of Cryptos. In the previous blog post, we had discussed a little bit of the history of the invention of BlockChain technology and what it can do to our digital future. The first implementation of this technology was in Bitcoin. There is every chance that you know about Bitcoin but not about BlockChain and rightly so…..why should a common man know, what technologies are involved in making a television set or airplane. They may just be happy using these modern marvels which makes their life a little more interesting and the same true about Bitcoin or any other cryptocurrencies. But, the problem is that the very quality which makes them tamper-proof or manipulation-proof also makes it unregulated and beyond the control of governments. Is this good or bad ??? will depend upon the country in which you live. Therefore, let's examine these issues a bit more in detail before deciding to invest in them.

I had always maintained that if any means of wealth creation is legal, for me it is welcome. However, I am happy to say that I have tweaked it based on discussions with my friends to, “If it is ethical and legal, it is welcome for me.” How so ever vague cryptos maybe, I see no ethical issues with them. Yes, they may be used for funding unethical dealings such as drugs, human & gun trafficking, and terrorism but the same is true for any other asset class such as money, gold, diamonds, etc. Therefore, in my view box for ethics is checked.

The next question …….is it Legal???? and this certainly is a tough question to answer at the moment. If you have been following financial news for the last week, you would know that the Crypto Exchange CoinSwitch became the 30th Unicorn for this year. For the benefit of my new readers, a unicorn is a term given to new startups who cross the $1 Billion valuation mark. CoinSwitch raised $260 million last week from a top Silicon Valley fund Andreessen Horowitz and Coinbase Ventures. This increased its valuation by almost four folds to $1.9 billion, making it the newest Unicorn on the block. With this news, its user base too rose by a million from 10 million to 11 million in just a single day. Even if we do not understand what’s going to happen in near future, large investments such as $260 million by a credible and reputed business house certainly gives hope to people who are advocating for cryptocurrencies.

So far Indian government is not sure how to handle or legalize the transactions of cryptos. In 2018, the Reserve Bank of India kind of banned cryptos till the ban was reversed by the Supreme Court in 2020. Along with RBI’s ban of 2018, Indian banks too discouraged and disallowed transactions with crypto-exchanges as they believed they are not governed by Supreme Court but are answerable to RBI. This continued till recently when RBI issued a clarification stating post-Supreme Court’s ruling banks can not disallow their customers from investing in Cryptos, however, it is up to investors to take a very careful and prudent call whether to invest in Cryptos or not. At present, there are no clear laws that prohibit or allow trading in cryptos. But in a sense, with the ruling of the Supreme Court, cryptos too have attained the same status as that of Gold, Silver, Commodities such as grains or Crude, Real Estate, or any other tradable commodity. As in these cases, nobody tells you to invest in them compulsorily while at the same time nobody tells you not to. It is now left to investors' decision to use these as means of wealth creation. Then what is so different ??????? isn’t trading in crypto safe now?????

In my view, cryptos were created to facilitate online payments without government interference, and this inherent capability of cryptos where they cannot be tracked, monitored, or controlled makes any government uneasy. In the modern banking or financial system, only governments or central banks were given the power to create currencies that are recognized as legal tenders. Therefore any contest in this space is likely to be turbulent. Governments fear that uncontrolled use of cryptos may collapse the entire modern financial system as this would make business transactions untraceable and hence people may use this to avoid taxes and this would lead to lesser and lesser money in the government's hand for welfare schemes as well as routine expenditures. At the same time, this could also fuel parallel economy providing easy access to all kinds of unlawful activities to be progressed abated.

Though there are many measures such as detailed KYC (Know Your Customers) similar to Mutual Fund investments which are being implemented through trading exchanges such as CoinSwitch. But still, there is a huge gap between crypto investors' aspirations and the government's desire to control them. Till such time some concrete measures are taken either by the crypto community to regulate transactions to make them more transparent or by governments to promulgate guidelines to make these more accountable either through exchanges or through banks, there will be uneasy calm which will be frequently broken by the spike in cryptos prices based on speculations.

Now the trickiest part……what should I do???? wait for the clarity from the government, which could take eons and miss the bus or take a leap of faith and lose my money??????? The funniest thing is nobody can take this decision for you but surely we can draw some guidelines for it……remember Greed — Fear tipping scale which we discussed in earlier blog posts….that can be a wonderful tool to measure your appetite for this untested market. On a scale of 1 to 9, where Zero is absolute fear and 0 greed while 10 is absolute greed and 0 fear, weigh your greed and fear……if the score is less than 4 stay away from cryptos, if it is between 4.5 to 7.5 start taking measured risks, and if it is more than 8 ….stop asking for money from your parents and start earning it ….ha..ha…ha.

If you are a conservative type who is only comfortable with FDs, Post Office Deposits, Pensions Funds, or may be limited exposure to Mutual Funds, my advice would be to stay away from cryptos. Investment in cryptos will be like a roller coaster ride… a couple of days you could double your investments but there always will be a risk of you losing up to 20 to 30% in one or two trading sessions.

If you are a medium risk-taker who is comfortable investing in Mutual Funds but also invests in equities whenever there is a reasonable chance of making money, it would be best to take cautious and measured steps in these untested waters. For this put aside 1 to 2 % of your total portfolio till you get the hang of it.

Lastly, even if you are a risk-taker by nature, commit to yourself that you will not gamble everything away. I would recommend not more than 2 to 5% of the overall portfolio in cryptos. This can be doubled only with knowledge of this field and adequate exposure and in no case, it should cross 10% of the overall portfolio.

Ok…cryptos may not be all that bad and maybe this is realized by governments too. The latest recognition by the Government of Nicaragua has given a lot of hope to crypto enthusiasts. I am sure, even the Indian government realizes the potential of BlockChain technology and that may be the reason why it has not banned crypto outrightly. But, how do we invest in it…….is my Demat account sufficient or do I have to apply someplace else…….which crypto exchange to choose, and lastly which crypto is my winning horse??? I am sure you must be wondering about these now. Therefore, let's discuss these in the next post … week

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