Bitcoin rally: Book partial profits, full exit unnecessary unless needed

Bitcoin, which traded at $60,309 on October 10, 2024, has surged to $91,133, an increase of 51.1 per cent in a little more than a month. Nandan Agarwal, 34, an information technology professional from Noida, is wondering if he can still enter this asset class or if he has missed the rally altogether. Ajay Singh, 41, a garment trader from Karol Bagh, who has been a Bitcoin investor for four years, wants to know if he should hold his position or sell.

 

The Trump rally   

 

The primary driver of Bitcoin’s surge is the pro-cryptocurrency stance of the US President-elect Donald Trump. “In the past, he has expressed his intention to make the US a hub for crypto innovation. Other countries may follow the US lead and also introduce favourable regulations for cryptocurrencies,” says Sumit Gupta, co-founder, CoinDCX. 

 

Institutional interest in cryptocurrencies is up, as is evident from the increased volumes in Bitcoin and Ethereum exchange-traded funds (ETFs).

 

Rally may continue 

 

Industry insiders are optimistic the momentum will not end anytime soon. Companies like MicroStrategy, Tesla, and Square have added Bitcoin to their reserves, while many hedge funds and large asset managers have incorporated it in their portfolios. “If institutional adoption continues to grow, and bitcoin’s role as a hedge against inflation becomes widely acknowledged, its price could go up further,” says Harish Vatnani, head of trade, ZebPay. 

 

Further regulation favouring crypto could boost demand. “If the US government makes bitcoin a strategic reserve, a large amount of capital could flow into it,” says Gupta. The entry of retail investors in large numbers could also provide more fuel to the rally.

 

Beware of regulatory risks   

 

Euphoric market sentiment and excessively high prices could trigger a correction. “Regulations that are negative for cryptocurrencies could also bring the current rally to an end,” says Gupta. 

 

The possibility of other cryptocurrencies gaining appeal and taking market share from Bitcoin cannot be ruled out.

 

Can you still enter? 

 

Industry experts believe it is still a favourable time to invest in Bitcoin. “The number of investors in Bitcoin is around 400-500 million currently. It is still at an early stage — where the Internet was around 2004. Just as the Internet has become a more integral part of our lives today, similarly Bitcoin and blockchain-based technologies will become more mainstream in the future,” says Gupta.

 

Vatnani adds that believers in Bitcoin’s potential may consider investing.

 

As for existing investors, Gupta advises treating Bitcoin as a long-term asset, akin to real estate, to benefit from compounding. “Those who entered early and have significant gains may book partial profits,” he says.  

 

Investors nearing an important financial goal should also consider exiting this volatile asset class.

 

Can you stomach the volatility?

 

Only investors with knowledge of cryptocurrencies, long-term conviction, and a long horizon should invest in this asset class. “Investors should ideally have an investment horizon of at least five years and invest only that portion of their money which they are willing to write off if things don’t turn out well for them,” says Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment advisor and founder of SahajMoney.com. 

 

Investors must also be prepared for volatility. “Before entering, weigh its risk-reward ratio. Remember that cryptocurrency returns are subject to a lot of volatility,” says Kumar. Vatnani suggests adopting a rupee-cost-averaging approach. 

 

Finally, new investors should stick to recognised exchanges registered with the Financial Intelligence Unit-India and ensure it has insurance for the assets it holds.   

WHAT NOT TO OVERLOOK

- While the government has made crypto assets taxable (flat rate of 30 per cent), it has not completely clarified its attitude towards cryptocurrencies; in the worst-case scenario, they could face a complete or partial ban, or restrictions

  - Since there is no regulator for this asset class, investors don’t have recourse to any remedy or protection that traditional financial assets have, which makes them more vulnerable to fraud, exchange failures, or hacking incidents

  - Stricter anti-money laundering rules could possibly be applied to cryptocurrency exchanges, resulting in the freezing of accounts or limitations, if suspicious activity is suspected