Genuine opportunity or plain greed? What attracts retail investors to cryptocurrencies?


a close up of a logo: Genuine opportunity or plain greed? What attracts retail investors to cryptocurrencies?

© Jocelyn Fernandes Genuine opportunity or plain greed? What attracts retail investors to cryptocurrencies?

Nearly a crore Indians are estimated to have invested in cryptocurrencies. The estimated number of mutual fund investors in the country is around 2.46 crore. There are at least 2.18 crore demat accounts as per NDSL depository. But the cryptocurrency market is growing. What attracts investors to cryptocurrencies? Are they comfortable with the wild swings in prices? Is it for fun or do they see cryptocurrencies as meaningful investments in the years to come?

Baby steps and rising confidence

A majority of cryptocurrency investors bought Bitcoin and other such digital currencies last year, but there were quite a few who took the bite many years ago. Mumbai-based Utkarsh Somaiyaa, 42, a data analytics professional, invested a small amount in Bitcoins in 2013 after tracking them for over a year. Somaiyaa knew that although Bitcoin was projected as an alternative currency, it was more of an asset, an investment, for him. The democratisation of how it worked and the future use of technology (blockchain) that is sought to being used in other walks of life, is what appealed to Somaiyaa the most.

In 2017, he started a systematic investment plan (SIP) in Bitcoin before it was abruptly stopped the next year as the Reserve Bank of India (RBI) virtually banned cryptocurrencies and prohibited all regulated entities, such as banks, from allowing anyone to trade in them. “Last year, I again started investing in cryptocurrencies,” says Somaiyaa who has since diversified into other digital coins such as Ethereum, the world’s second-largest cryptocurrency by market capitalisation.

A trip to Thailand in 2010 got Mumbai-based stock analyst Nilesh Shah acquainted with someone who had been buying and selling Bitcoins. Initially, Shah dismissed it as he had been a staunch stock market investor for 20 years. But three years later, he invested Rs 100 in Bitcoin. As he read more about cryptocurrencies, Shah says he was convinced that digital currency was the way ahead. That day still hasn’t come, but an increased interest and participation globally has forced countries to sit up and take notice. The government has proposed a Bill to regulate cryptocurrencies. It is called The Cryptocurrency and Regulation of Official digital currency Bill, 2021. The Bill has provisions to make any dealings in cryptocurrency illegal. But there is no clarity yet on when this Bill will be introduced in Parliament. That hasn’t deterred Shah, who has since bought other cryptos such as Dogecoin, Ripple and Tether.

Cryptocurrency: Serious investors or gamblers?

Savvy investors who put money in cryptocurrencies say that it’s best to limit your investments to about 5-10 percent of your overall portfolio. At 62, US-based Santosh Kolhatkar is thrilled to invest in cryptocurrencies. But as a technology management consultant, Kolhatkar says it has taken time for people to get past the dark web transactions that Bitcoin has also been used for. In 2018, he started investing in Bitcoin. He had already made money in it a few years ago. When US-based Paypal started allowing its users to buy items on the app from its partner merchants using Bitcoins, his confidence grew. He believes in limiting his investments in cryptos to 5 percent. “Even if I lose this entire five percent, it won’t hit me. That’s the kind of exposure I have to cryptos,” he says over the phone from San Francisco.

Kavita Kumble’s initial investment of Rs 75,000 in Matic Network became almost Rs 42 lakh in just three months. Kumble says she withdrew Rs 1.75 lakh, more than what she had invested. “I would have never made this sort of money from mutual funds,” she says. Kumble, 46, is well-versed with mutual funds and stock markets, having worked in private banking firms. But this is not the first time she tasted success with cryptocurrency.

In 2017, her initial investment in Bitcoin grew to Rs 12 lakh. She says she took some money off the table and bought herself an iPhone. But the RBI clampdown of 2018 and a loss in the other crypto investment, Ripple, got her husband and family worried that perhaps Kumble was taking too many chances. Her fears of a more permanent regulatory clampdown aside, Kumble asserts that cryptocurrencies are the way forward. “Invest in them only if you are in for the long run,” she says.

Navigating the daily volatility

Zulfikar Kapadia, 30, and a business development manager in the advertising industry, had been a conservative equity investor. But he got drawn to cryptocurrencies after celebrities and influencers such as Elon Musk of Tesla and Mark Cuban, the owner of basketball team the Dallas Mavericks and a panellist on the popular reality show Shark Tank, started voicing their support for cryptocurrencies. In the meantime, he had seen portfolios of some of his friends multiply in cryptos. Kapadia bought Dogecoin at around Rs 8 in April 2021. But after the price fell sharply in May (from Rs 52.54 to Rs 22.49), Kapadia’s investments declined as well. “Everyone panicked; we thought Dogecoin was safe,” says Kapadia.

Like Kumble, Kapadia’s strategy is to take money off the table regularly. “I have taken almost 75 percent of my initial capital that I had invested in cryptocurrencies. I am now mainly trading on my profits,” he says.

Rishabh Parakh, a chartered accountant and founder of NRP Capitals explains that cryptocurrencies are bought and sold all over the world. And they are the same everywhere. Besides, due to the decentralisation (no market hours) of the crypto market, it can be bought and sold at any time (24*7*365). The volatility is quite unlike we’ve ever seen in traditional financial instruments.

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