Should Retail Investors Invest in Crypto?

Crypto currency is the new buzz word. Bitcoin is one form of it. Millennials are showing enormous interest in bitcoins. Since last few years, bitcoin has gained huge popularity. Thanks mostly to the exponential rise of the bitcoin price and thanks to the charismatic

Elon Musk for endorsing.

In the past one year, April 2020 to April 2021; Bitcoin price has skyrocketed from USD 7000 to about USD 55,000. A whooping increase of about more than 600% in a year. It has multiplied almost by 8 times in a year. This is the reason why investors are so excited about it.

However, despite this rally, should retail investors invest in this new instrument ?

Let’s try to analyse.

There are various investment instruments already available in the market. These are bonds, equities, mutual funds, future and options and so on. All these instruments are well matured and well regulated. These are time tested with proven underlying associated risks.For a retail investor these are good enough to experiment, invest, trade or even to speculate. Bitcoin is the latest addition albeit in a different form. This is the new kid on the block.

Bitcoin is a digital currency which one can buy/sell through crypto exchanges. Bitcoin is virtual money launched in 2009 and managed through computerised ledger system. The underlying platform used for this is called Blockchain. The entire ecosystem of bitcoin right from mining, storage, distribution, security and management is highly technical and complicated.

The cryptocurrency topic is being most debated around the world. Both the parties, favouring and against, are vociferous about their arguments. However, the proponents of bitcoin are somehow able to keep it in news and attract millennials worldwide.

In view of it’s growing popularity, it becomes essential to dive deeper and evaluate various aspects about bitcoin. Few of these which deserve attention are:-

• It is not a regulated instrument

• There is no centralised control on its operation

• In India, though it is not declared illegal, it is still not yet approved by Reserve Bank of India (RBI)

• RBI is planning to launch its own Central Bank Digital Currency (CBDC)

• The government is planning to introduce a bill to ban all private cryptocurrencies

• Bitcoin is prone to hacking

• Bitcoins can get lost from the database and can never be recovered

• Bitcoin investment is highly volatile

• Bitcoin investment is very risky

• There is no purchasing power for Bitcoin

Despite all these shortcomings, young generation is heavily betting on this currency. Mostly, the young IT professionals and robinhood traders seem to have attracted towards this. Just because one happen to work in IT industry and heard a little bit about blockchain technology doesn’t make you an expert in that field. Please do remember that blockchain is not bitcoin. Let us not get carried away by the euphoria.

However, before investing in any instrument, the retail investors must ask following questions to themselves:-

• What is the purpose / objective / goal of this investment ?

• How long I intend to hold this investment ? Short term or long term ?

• Do I have the fundamental knowledge of this instrument ?

• Do I understand it’s functioning ?

• How much risk I am willing to take with this instrument ?

• Am I speculating, trading, gambling or investing ?

• Do I have enough courage to see through the extreme volatility ?

• Will I able to sleep peacefully with this instrument ?
  

After this quick introspection, I am sure you yourself will get enlightened about this question “Should you invest in bitcoin ?”

Do you know what the great value investor, Warren Buffet said about bitcoin?

“Bitcoin is a Rat Poison Squared”

So, guys take a call !!!!!

It is always better to be safe than sorry.