In the last year or two, Bitcoin and other cryptocurrencies have delivered above-average profits (even if you consider the recent 30-40 per cent fall). As a result, it’s only natural for people to seek ways to participate in this upward trend. But is it legal to trade cryptocurrencies in India? And if that’s the case, how much should you put into it?
This is not a simple question to answer. The Indian government is still undecided on how to handle this new phenomenon. However, there are a few facts to consider. In 2018, the Reserve Bank of India came out aggressively and effectively banned them in India.
The Supreme Court of India then overturned the RBI’s 2018 ban in 2020. Following this, Indian banks restricted transactions with crypto exchanges, claiming they are overseen by the RBI (2018) rather than the Supreme Court directly (2020). However, the RBI has stated that banks cannot mention their 2018 ban to their clients because the Supreme Court overturned it!
Bitcoin and other cryptocurrencies are currently not banned in India, although they are unregulated. The government is concerned about the ‘unregulated’ portion. However, because the crypto world is all about ‘no central authority governing it,’ the government may still be unsure how to control this wild animal.
Blockchain technology:
The government does not want to miss out on blockchain technology because it is so promising. However, it is debating how to avoid undermining its regulatory position while allowing investors to enter the space. The government also intends to introduce the “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021,” which is expected to clarify the government’s position definitively.
Is it possible for this bill to make crypto-trading illegal in India?
Yes, it’s conceivable. But what will happen to those who own cryptocurrency as investments? According to HDFC Bank‘s report, Indian investors have invested $1.36 billion in cryptocurrencies. In a ban, I am confident that the government will not eliminate this investment overnight. Existing investors/traders may have more time to sell their shares.
Should you then make a cryptocurrency investment?
The answer is simple: it varies from one person to another. Before you make up your mind, consider the following information. Cryptocurrencies have plunged more than 80% from their highs every few years. And drops of 30-50 per cent are widespread.
If you are a conservative saver who primarily invests in fixed deposits, PF, and insurance policies, you should avoid investing in cryptocurrency. Volatility is not your cup of tea, and you must first become acquainted with the concept of equity.
If you’re a Moderately Aggressive Investor, you should still consider it. However, because of its tremendous volatility, it’s best to start with a few thousand dollars or whatever you can spare (or afford to lose entirely) and acquire a feel for it. Learn more about the concept, which isn’t easy to grasp.
How much investment is advisable?
When it comes to investing in cryptocurrencies, several prominent investors have stated different theories. Some opine that allocating 1% of one’s portfolio to Bitcoin or a basket of cryptocurrencies is a good idea.
So, if your portfolio is worth Rs 50 lakh, you can put up to Rs 50,000 (1 per cent of Rs 50 lakh) in cryptos. The logic is that if the cryptos you select perform well and increase by 10X or (fingers crossed) 50X, you will gain a lot of money. However, if it goes wrong, you only lose 1%, which you can make up for in a successful year by investing in the balance of your 99 per cent traditional asset portfolio: equity and debt. It will not be devastating if you lose 1% of your assets.
