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crypto investment: Cryptocurrency investing is risky but can reward: Risks to know, how to make the most of the opportunity

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Until about two months ago, Noida-based Gaurav Tyagi thought Elon Musk was a visionary who would lead the world into a technology-based and financially secure future. But not anymore. After Musk announced that his company would no longer accept bitcoins for buying Tesla cars and expressed concern about the environmental impact of bitcoin mining, the crypto market collapsed in mid-May.

It was a midsummer nightmare for investors like Tyagi. Within a week of May 13, the value of its crypto holdings plummeted more than 60% from around 55,000 rupees to less than 20,000 rupees as panicked investors quickly sold their coins. “Elon Musk acted irresponsibly without caring about the millions of investors who would be affected by such decisions,” he says sullenly.

Did you know already?

  • $ 1,635 billion is the estimated market capitalization of all cryptocurrencies. Bitcoin’s market capitalization of $ 674 billion (50.57.561 billion rupees) is more than three times that of India’s most valuable company, Reliance Industries (market capitalization 11.14.500 billion rupees).
  • Rs 1,000-1,500 crore is the combined daily turnover of crypto trading in India. This is less than 1% of the daily trading volume of Rs 2,00,000 crore on stock exchanges in India.
  • 10-12 million is the estimated number of active investors and traders of cryptos in India. That is 16-20% of the 60 million active stock investors and traders in the country.
  • The 24×7 trading takes place on the cryptocurrency market. The market is also open on Sundays and Holidays, unlike the stock and bond markets in India, which open at 9 a.m. and close at 3:30 p.m. and close on weekends.
  • 40-50% was the drop in crypto prices after Elon Musk tweeted that Tesla won’t accept payments in bitcoins and expressed concern about the environmental impact of crypto mining.

Tesla’s U-turn on cryptos wasn’t the only trigger. Around the same time, the Chinese government took action against institutions dealing with cryptocurrencies. These two developments sparked panic selling in cryptos. “Aside from panic selling, many investors decided at this point to post profits, which led to a more pronounced decline in crypto prices,” said Nischal Shetty, CEO and founder of WazirX, a crypto exchange founded in 2018.

Also read:
Why this crypto market correction is healthy

Crypto prices have risen over the past 12 months and have brought investors incredible returns. Even after the recent drop, the price of a Bitcoin is close to 400% last year. Some smaller coins like the Dogecoin are trading 140 times their June 2020 level, while Matic Network is up over 7000%.

Most searched cryptocurrencies
These 10 cryptocurrencies are among the most traded coins. Find out what drives them.

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Data from June 8th, 2021 | Sources: Investing.com, Binance

Lured by high returns
These enormous returns have drawn investors to what crypto evangelists are calling an emerging asset class. There are nearly 12-15 crypto exchanges in India and daily trading volume estimates range from Rs 500 crore to Rs 1,500 crore. As big as it sounds, this is less than 1% of the daily turnover of Rs 2,00,000 crore on the stock exchanges in India.

Shetty admits that daily sales are small, but points out that the number of investors is far larger. He estimates that there are more than 10-12 million active investors trading cryptocurrencies on the dozen crypto exchanges in India, accounting for about 16-20% of the estimated 60 million active stock investors.

These numbers suggest that the average crypto investor isn’t very deep in their pockets. Still, he can trade as cryptos can be bought and sold in fractions. A Bitcoin costs close to Rs 27 lakh and Ethereums cost Rs 2 lakh. But you can buy a fraction of these coins at Rs 50-100.

Such rules have made crypto trading easy and spawned a new generation of traders with traits that traditional investors would disapprove of. These investors are young, easily influenced by social media and ready to take high risks. Your impatience to get rich has shortened your investment horizon. “I want to invest for the long term,” says a seemingly astute 26-year-old Vikram Chaddha. Then he adds, “I can last 2-3 months.”

The trading hours of the crypto market add to the craziness. The exchanges are open 24 hours a day, seven days a week. No holidays, no weekends. You can act day and night. As one stock trader joked: “Now we can lose money on the weekend too.”

Meet Rajesh Rupala, a 31-year-old investor based in Bhavnagar, Gujarat who left a bank job last October to transform himself into a full-time stock trader. He was introduced to cryptos four months ago and was instantly hooked. Rupala has invested almost Rs 12 lakh (25% of its total investment portfolio) in this very risky but also rewarding option.

Facing multiple risks
Investors like Rupala don’t mind that cryptocurrencies are exposed to multiple risks. On the one hand, there is the systemic risk. Cryptos are very volatile instruments and can move very quickly and without warning.

“A second level of risk arises from regulatory ambiguity, cybersecurity threats, and uncertainty about their acceptance in mainstream finance,” said Pableen Bajpai, founder of FinFix Research and Analytics. Three years ago, RBI practically banned cryptos when it asked banks and fintech companies to discontinue their services for companies that trade virtual currencies. But last year the Supreme Court lifted the RBI’s ban, saying that cryptos are unregulated but not illegal.

That hardly calms you down. If a stock investor has a complaint against a company or an intermediary, he can contact the Sebi and the complaint will be dealt with in accordance with the codified rules. But since there are no regulations governing cryptos, the investor will likely have to go to the cybercrime cell or move a court. “That’s why regulation is important. There is self-regulation going on at the industry level right now, but we want the government to set the rules and appoint a regulator, ”Shetty says.

Crypto investors are also at risk from unscrupulous promoters and shady outfits. It’s a landscape full of stories of scams and scams. “Given the lack of credible information and reliance on social media, there is a very high risk of price manipulation,” said Gaurav Garg, research director at CapitalVia Global Research.

Tampering is also possible as many cryptos are not very common. “There is a concentration risk when a few investors hold very large amounts of a particular coin,” says Vineet Nanda, co-founder of Globalize. As the May crash demonstrated, there is a high risk of price manipulation if a tweet can lower the price by 40-50%.

Too big to switch off
Many investors find solace in the numbers. The crypto industry has gotten gigantic in recent years. Bitcoin’s market capitalization alone exceeds Rs 50 lakh crore, which is higher than the combined market capitalization of the six largest stocks in India, including Reliance Industries, TCS, HDFC Bank, Infosys Technologies, Hindustan Unilever and HDFC. Ethereum’s market capitalization is equal to the next six stocks. So the two largest cryptos are bigger than the 12 largest stocks in India. “How can a government shut down something that has attracted so much investment,” asks Arun Shivshankar, a 22-year-old medical student from Vellore. Shivshaker tries out cryptos after graduating from college.

The actors of the crypto ecosystem are also confident that the government will not ban virtual currencies. In fact, the government plans to create its own sovereign digital currency. “Nobody thinks of banning them because it is practically impossible. The other reason is that the technique is actually good. It’s so beautiful that in the future it will find a way to grow. And if that happens and a nation doesn’t belong, it will simply lose, ”says Vikram Subburaj, CEO & Co-Founder of Giottus Cryptocurrency Exchange.

Cryptocurrencies are risky, but if you are careful and understand the market they can be very rewarding too.

Also read:
Seven Rules of Cryptocurrency Trading for New Investors

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Orlando residents launch cryptocurrency group to educate and give back to international communities

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From donations to food drives, there are many ways you can give back to communities in need but three Orlando residents are turning to digital tools to support low-income families in developing countries. Chris Delgado, Fabian Kumpusch and Vance Fundora share a vision of rebuilding and impacting communities around the world.”Where can our dollar literally go the furthest?” co-founder of ‘Crypto Impact’ Vance Fundora said. The answer led them to the way they grow their own personal finances – cryptocurrency which is a type of currency that uses digital files as money. The men recently launched their group ‘Crypto Impact’ where they’re traveling abroad to help communities in poverty. “You can literally send money to an individual in need through blockchain technology where banks are shut down and you can’t really wire money like we do here in the states and those countries don’t have a cell or Venmo type thing,” co -founder of ‘Crypto Impact’ Chris Delgado said. “Normally when people donate they’re donating to a bigger cause where they’re providing food for disaster relief,” Delgado said. “This where ‘Crypto Impact’ comes into play we’re delivering specific needs to individuals and we’re there on the ground.”When WESH 2 spoke with Delgado and Fundora, their third business partner was in Vietnam where he was connecting people with clothing, food and clean water. It’s the start of future international projects that will all be funded by digital coins.”It’s just a new industry and it’s a lot of opportunity across the board in terms of technology available,” Fundora said. Being on the ground with the people they’re giving back to is vital for the men so they can educate and raise awareness. “To show not only the beauty behind crypto and bring mass adoption, but also to give in other countries where you can’t necessarily bring in hundred, 200 or 300 hundred dollars but with crypto you can,” Delgado said. The friends have plans to travel and spread ‘Crypto Impact’ to other developing countries in the future.

From donations to food drives, there are many ways you can give back to communities in need but three Orlando residents are turning to digital tools to support low-income families in developing countries.

Chris Delgado, Fabian Kumpusch and Vance Fundora share a vision of rebuilding and impacting communities around the world.

“Where can our dollar literally go the furthest?” co-founder of ‘Crypto Impact’ Vance Fundora said.

The answer led them to the way they grow their own personal finances – cryptocurrency which is a type of currency that uses digital files as money.

The men recently launched their group ‘Crypto Impact’ where they’re traveling abroad to help communities in poverty.

“You can literally send money to an individual in need through blockchain technology where banks are shut down and you can’t really wire money like we do here in the states and those countries don’t have a cell or Venmo type thing,” co -founder of ‘Crypto Impact’ Chris Delgado said.

“Normally when people donate they’re donating to a bigger cause where they’re providing food for disaster relief,” Delgado said. “This where ‘Crypto Impact’ comes into play [because] we’re delivering specific needs to individuals and we’re there on the ground.”

When WESH 2 spoke with Delgado and Fundora, their third business partner was in Vietnam where he was connecting people with clothing, food and clean water.

It’s the start of future international projects that will all be funded by digital coins.

“It’s just a new industry and it’s a lot of opportunity across the board in terms of technology available,” Fundora said.

Being on the ground with the people they’re giving back to is vital for the men so they can educate and raise awareness.

“To show not only the beauty behind crypto and bring mass adoption, but also to give in other countries where you can’t necessarily bring in hundred, 200 or 300 hundred dollars but with crypto you can,” Delgado said.

The friends have plans to travel and spread ‘Crypto Impact’ to other developing countries in the future.

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Bitcoin is ‘not immune’ from stock market volatility (Cryptocurrency:BTC-USD)

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MicroStockHub/E+ via Getty Images

Bitcoin (BTC-USD) has often been hyped as an inflation hedge or as an alternative investing class, an opportunity to diversify a portfolio. However, evidence continues to mount, especially in the recent market downturn, that crypto holds a high correlation with stocks (SP500).

This connection is evidenced by the fact that both bitcoin and equities grinded higher in the easy money era of 2020-2021, and now both are facing cyclical downturns as financial conditions tighten and liquidity dries up.

“The correlation between bitcoin and equity indices has remained high and will continue to do so unless bitcoin becomes widely used as a medium of payment – which looks unlikely to happen soon,” Morgan Stanley analyst Sheena Shah wrote in a note May 10.

For some context, the rolling 120-day correlation between the S&P 500 index (SP500) and bitcoin (BTC-USD) was recently standing at 0.60, the highest reading since the series began in 2011, Charles Schwab Chief Investment Strategist Liz Ann Sonders wrote in a Twitter post May 10. In other words, bitcoin’s price action resembles that of stocks and therefore risk assets. Take a look at the chart below to further grasp how bitcoin has fared Y/Y with the S&P 500 as well as S&P volatility, which is inversely correlated with the major stock index.

For a macro perspective, as central banks across the globe pivot to tighter monetary policy (some more aggressive than others) in an effort to dull widespread inflationary pressures, global money supply growth continues to decelerate from its peak in Feb. 2021, Shah noted, adding that bitcoin’s (BTC-USD) market cap growth topped a month later in March 2021, implying that global liquidity and bitcoin could share a connection.

Note that in 2020, speculative assets like bitcoin soared in price in the wake of extraordinary accommodative monetary/fiscal policy and surging money supply. Stifel recently predicted for bitcoin to reach as low as $15K as shrinking M2 money supply growth, a broad measure of money in circulation, “should sharply weaken Bitcoin.”

Looking at the BTC-stocks correlation from a different lens, retail investors used to be the dominant cryptocurrency trader around four years ago, but now “the largest proportion of daily crypto trading volumes is from crypto institutions, much of which comes from them trading with each other,” Shah explained.

This dynamic has contributed to bitcoin’s (BTC-USD) strong bond with equities since those institutions are sensitive to the availability of capital and therefore interest rates, she added.

Commentary: “We’ve definitely seen [bitcoin] trade more in line with stocks and more in line with the Nasdaq and tech stocks, in particular, over the last few quarters,” Coinbase (COIN) CFO Alesia Haas told CNBC’s Squawk Box in an interview May 12. “Lots of institutional money has come into crypto, and with the broader volatility that we’re seeing, we’ve seen strong correlations,” she added.

Take a look at SA contributor’s The Digital Trend’s bullish take on bitcoin.

Earlier this past week, (May 12) Bill Miller said he hasn’t sold any bitcoin.

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Pros, cons of cryptocurrency mining in upstate New York

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Last month, the New York state Assembly voted to pass Democratic Assemblymember Anna Kelles’ two-year moratorium on new cryptocurrency mining. The idea behind the bill is to give the New York State Department of Environmental Conservation the time to conduct an environmental impact study of the practice.

The bill would prevent new permits from being issued for a very specific kind of cryptocurrency operation, known as carbon-base fueled, proof-of-work mining operations, that use behind-the-meter energy.

The bill still needs to pass in the state Senate and be signed by Gov. Kathy Hochul before it can become law.

The allure of cryptocurrency is that by using blockchain technology, financial transactions are instantaneous, secure and very difficult to trace. But there is a downside to proof-of-work mining: it takes enormous amounts of energy to run the thousands of computers used to “mine” coins.

This is why Assemblymember Kelles said her bill is so narrowly focused.

“This particular type of validation of cryptocurrencies is called proof-of-work, which is synonymous with cryptocurrency mining. There is no other kind of method that is called mining. It has been found across the globe to use phenomenal amounts of energy in comparison to other forms of validation such as proof-of-stake, for example,” Kelles told Capital Tonight.

Cryptocurrency “mining” isn’t mining in the usual sense of the word. It’s millions of computers competing with each other to validate transactions. The more computers a miner has, the greater the advantage — and the more energy used.

Upstate New York is attractive to cryptocurrency miners for a variety of reasons, including abundant clean air and water, relatively cool temperatures and cheap hydroelectric energy with which to power computers.

Upstate New York also has several old power plants that are ready-made to house these mining operations, some of which are being purchased by publicly-traded companies. These companies are re-purposing the power plants to make their own energy “behind the meter,” meaning it is produced and consumed on-site.

“We are a prime target,” Kelles said of upstate.

One of the largest cryptocurrency mining operations in upstate New York is Greenidge Generation, located on the shores of Seneca Lake in the Finger Lakes region. Critics, including Kelles, argue that the crypto-mining taking place at Greenidge is hurting the already established agritourism and wine industry there.

The Greenidge Generation bitcoin mining facility is in a former coal plant by Seneca Lake in Dresden. (AP Photo)

The assembly member also argues that cryptocurrency mining is not a big job creator.

“Mining itself is not a huge job creator because the computers, first of all, are doing all the work. But secondly, what’s really important, is that the algorithm they are running is very simple. It’s not like the algorithm for the Skype app… and therefore it doesn’t take a massive amount of engineering jobs…to maintain,” Kelles said.

“[Cryptocurrency mining] is a very small fraction of jobs compared to [agritourism],” Kelles said.

But cryptocurrency advocates, including Republican Assemblyman Robert Smullen, argue that New York is a world leader in financial services, so why shouldn’t the state lead when it comes to cryptocurrency as well?

Smullen also takes issue with Kelles’ characterization of the jobs created by such operations.

“These are good jobs because they’re electrical jobs, essentially, is what they are, and they’re running all of these facilities,” Smullen explained. “This is a new form of advanced manufacturing.”

Indeed, the union IBEW is a supporter of cryptocurrency mining.

As for Greenidge Generation in particular and its plan to expand from the 17,000 computers it has operating currently, Smullen isn’t concerned.

“[Greenidge] is probably one factory in one small part of one town so I don’t think it’s disrupting any agritourism brand for the beautiful area of ​​the Finger Lakes,” Smullen told Capital Tonight.

What the assemblyman is very concerned about is the possibility of a two-year moratorium on new cryptocurrency operations.

“In this industry, two years is literally light speed in the blink of an eye,” Smullen said. “This industry, financial technical things, they can go anywhere.”

The key, according to the assemblyman, is getting miners to come to New York, and then keeping them here.

“This is commerce that’s very important to the future of financial services industry. During the pandemic, we saw that jobs in New York City, many of them could be done from anywhere. My concern then and my concern now is that we’ve set up a regulatory environment in this state which positively incentivizes the financial services industry, which is going to evolve over time with technology to stay in New York state,” Smullen said.

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