Navigating the nuances of crypto investments in India

Investments in crypto assets rose from $923 million in April 2020 to an impressive $6.6 billion by May 2021 in India. According to a report by blockchain data platform Chain Analysis, India ranks 11th among 154 nations when it comes to crypto adoption.

Investments in crypto assets have seen explosive growth in India since 2020. Several factors have contributed to this shift towards crypto assets, including low-cost internet and growing interest and awareness about crypto. The launch of crypto assets in India has given unparalleled freedom to everyone over the age of 18 to look beyond stock markets and enhance their portfolio.

Crypto exchanges

High inflation and unorganised modes of investment have paved the way for prudent entrepreneurs to start crypto exchanges in India. Crypto and blockchain technology’s intrinsic nature has allowed entrepreneurs to scale crypto exchanges with a nominal trading fee and nearly no yearly maintenance charge. Other reasons for the boom in crypto exchanges include round-the-clock services and instant settlement.

Nearly 20% of Indian ultra high-net worth-individuals invested in crypto assets last year amid rising popularity of cryptocurrencies and NFTs, according to a Knight Frank report. 

Data from multiple crypto exchanges across the country suggest that millions of retail investors have signed up to invest in crypto. Crypto investments are seeing an uptick in India, a country where most households tend to invest in less volatile assets such as gold and fixed deposits. The growing number of crypto adopters also suggests a change in the investment paradigm, driven mostly by the country's younger demographic.

Gold may be the country’s favourite asset class, but Bitcoin is emerging as an alternative investment choice for many Indians. Investments in crypto assets can serve as a long-term store of value, according to many research insights. Bitcoin, Ether, Ripple and Litecoin are examples of natively developed crypto assets.

Blockchain demystified

Blockchain is an open-source distributed ledger that is shared across a network of independent computers. Records on a blockchain can be validated by all the members of the network using consensus mechanisms. This allows the elimination of third parties, making the system peer-to-peer.

Crypto assets work on distributed ledger technology, which means several devices across the globe, instead of one central hub, continually verify the transaction validity.

Other than understanding blockchain technology, investors can also be a part of several online crypto communities to learn from like-minded enthusiasts. This would keep them updated with all the latest buzz in the rapidly evolving industry.

Understanding and overcoming the risks

It is crucial to understand that, while it is highly rewarding, the crypto industry is also volatile. Do your research and time the market appropriately. In other words, monitoring the industry before you take a buy or sell decision is key. 

Investing in crypto assets over the long term requires getting an overview of the returns you stand to earn before diving deeper into the technical factors that influence crypto market valuation. Before studying the price movements, investors should look at the fundamental analysis, i.e. picking the right asset for the right purposes. With each crypto asset, prices and some other key metrics can help investors make smart decisions. It is important to understand which assets have the best investment potential and which ones are high-risk investments.

Investors will also need to be aware of the nuances of investing in blockchain technology and the virtual assets built upon it. This is because investors in initial coin offerings typically receive virtual assets as coins or tokens in exchange for Ether or Bitcoin. Investors looking to add a crypto asset to their crypto portfolio will have to familiarise themselves with the blockchain governance models that create those assets, as well as keep a close eye on their specific use cases, which are usually found in whitepapers published by projects.

While most people don’t use crypto assets for payments currently, the situation could change with increased adoption of crypto. More widespread institutional adoption will result in more applications for common users, which will affect the price of crypto assets. Although volatility is part of crypto investing, if you invest in crypto as a long-term store of value, it can lead to better returns.