Planning to invest money? Don't enter cryptocoin trade for quick gains

Invest for the long term via SIP, and limit allocation to 5-10% of the portfolio

Bitcoin crossed the $28,000-mark on December 27. It has rewarded investors with a return of about 280 per cent over the past year. With the rally expected to continue, interest in cryptocurrencies has spiked within India, too. The Indian government is now exploring a proposal to impose an 18 per cent goods and services tax (GST) on cryptocurrency transactions.

The Supreme Court’s decision was the turning point. According to Arjun Vijay, chief operating officer (COO), Giotuss Cryptocurrency Exchange, “From March 2020, after the Supreme Court lifted the two-year ban imposed by the Reserve Bank of India (RBI) on banks and financial institutions dealing with digital currency exchanges, volumes have increased.” 

There are over a dozen cryptocurrency exchanges in India that you can choose from. There are homegrown ones like Unocoin, BuyUcoin, Giotuss, WazirX, and ZebPay (now Singapore-based, but active in India). Others are based abroad, but have entities in India. All exchanges, broadly speaking, have a similar format, though the offerings and interfaces may differ. 

Spot trading: On the spot exchange, traders exchange cryptocurrencies instantly. A Bitcoin exchange acts as the intermediary between a seller and a buyer. You can deposit money with the exchange via netbanking, credit card, UPI, etc. Shivam Thakral, co-founder and chief executive officer (CEO), BuyUcoin says: “Exchange platforms match buyers with sellers. Some also offer an over-the-counter (OTC) service.” In an OTC service, buyers buy cryptocurrencies from the exchange.

Like a traditional exchange, you can trade via either a market or a limit order. Some exchanges also offer derivatives. Monark Modi, founder and CEO, Bitex Technologies says: “We also offer a futures trading platform and a margin-based trading platform.” Many exchanges let you set up a systematic investment plan (SIP) for regular purchases. 

Peer-to-peer (P2P) trading platforms: These connect buyers and sellers. Sellers set their price and mode of payment. The transaction happens outside an exchange. Payment is made using services like PayPal and bank transfer. 

How to start: The novice investor should start with a small amount, even as little as Rs 100. Rahul Pagidipati, CEO, ZebPay says: “Increase your understanding of cryptocurrencies and get hands-on experience with small trades.”

Cryptocurrencies can be stored either with the exchange or in a personal wallet on your device. Sathvik Vishwanath, co-founder and CEO, Unocoin says: “The latter is called ‘custodial wallet’. If you don’t take good care of it, you might lose the cryptocurrencies. It is better to keep your cryptocurrencies with the  exchange’s wallet.” 

Who should buy: Exchanges allow those above 18 years to invest. Namish Sanghvi, founder, CoinCrunch.in says: “Anyone looking to invest for the long term should invest in cryptocurrencies. However, the amount should be less than 10 per cent of your net investment.”  

Pay tax on gains: The Income-Tax Department has been tracking the transactions of investors making money through cryptocurrencies. Archit Gupta, CEO, ClearTax says: “The Department issued tax demand notices to more than 500,000 individuals last year. Hence, it's not a good idea to skip paying taxes on gains from cryptocurrencies.” 

Only after you have gained a fairly good understanding of the basics, you should venture into other options like derivatives and cryptocurrencies other than Bitcoin, and so on. SIP is a good option for those who wish to invest for the long term.