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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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Cryptocurrency

American Banks Encouraged To Partner with Cryptocurrency Firms

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A recent report by the ABA (American Bankers Association) suggests that banks are partnering with cryptocurrency firms because of the growing customer interest and profit in the sector.

This 20-page report offers a detailed analysis of the crypto, including a glossary. It also maps cryptocurrency activities to banking services and products. The banking association also proposes crypto use cases for the banking sector with regulatory issues and revenue models for the use case.

Related reading | Vitalik Buterin urges Ethereum to grow beyond DApps

The report covers four different categories of crypto assets: CBDC (Central Bank Digital Currency), cryptocurrencies, non-fungible tokens and stablecoins. Defi (Decentralized Finance) was also mentioned.

Use cases and regulations for cryptocurrencies

According to the report, some of the use cases of crypto in the banking sector include the following:

  • Stores of Value – Banks can generate income by making it easier to buy and sell crypto on their platforms.
  • Custody account / wallet provider – banks can offer digital wallets and charge service fees for them.
  • Interest-bearing accounts – Banks can earn an interest fee by making loan transactions easier to investors.
  • Lending – Banks can offer their customers loans in cryptocurrency and charge a fee for it
  • Payments – Banks may charge fees such as B. for credit or debit cards
  • Broker-dealer banks can collect spreads from crypto-asset transactions and generate income
  • Exchange trading – banks can generate income from transaction fees, deposit fees, listing fees, etc.
  • Network utility banks can offer utility tokens and generate income by creating and selling them.
  • Insurance – Banks can increase insurance premiums by spreading risk among different investors.
  • Asset management banks may charge customers a crypto portfolio management fee.

Another aspect of the report concerns crypto regulations. It focused on requirements related to selling or offering crypto, tax reporting, and money transfer. According to the report, the SEC regulated the sale of cryptocurrency.

The crypto market appears to be rising 4% on the daily chart | Source: Crypto Total Market Cap on TradingView.com

The FinCEN regulates this for every money transfer and requires the operators to register for the MSB and MTL, Money Services Business and Money Transmitter licenses. But tax reporting is on the IRS’s table.

However, it has also been pointed out that there is still no clarity on crypto regulation. According to the report, such unclear regulations can create different or unclear requirements. DeFi, gamification and many environmental issues were also mentioned as risks to the cryptocurrency industry.

What can be the way forward?

According to the report, banks are very interested in the crypto industry. Their goal is to identify the opportunities to offer their clients exposure to these assets.

Currently, growing customer interest in crypto is driving banks to look for ways to offer cryptocurrency products. There was also a reference to the NYDIG survey which found that 80% of BTC would transfer their assets to banks.

Related reading | Ethereum founder Vitalik Buterin spotted with Hollywood stars

As the report notes, banks should partner with cryptocurrency companies and accept their customers as customers.

On the flip side, banks will access payment systems to take fiat deposits on board and outsource them. The report also went further, suggesting partnerships that could work between the two sectors.

Featured image from Pixabay, chart from TradingView.com

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Why Web 3.0 Tokens Might Be the Next Hot Trade in Cryptocurrencies

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With Bitcoin prices stuck in a month-long queue, some cryptocurrency traders are speculating about what may be the next hot market bet: digital assets linked to visions of a decentralized internet, colloquially known as Web 3.0 tokens.

Data tracked by Messari and published by Jeff Dorman, Arca Chief Investment Officer, shows that the cryptocurrency subsector “Web 3.0 tokens” increased 22% in the week ending August 1st, and Bitcoin and everyone else Subsectors, including non-fungible tokens, are dwarfed (NFTs). Bitcoin, the largest cryptocurrency by market value, gained 10%.

For the year to date, tokens related to decentralized internet applications have seen an average increase of 244%, lagging the 2.726% increase of the NFT subsector but surpassing Bitcoin’s appreciation by 37%.

Related: Market Wrap: Bitcoin and Ether rise on bullish sentiment

Some of the best-known Web 3.0 coins, like Livepeer (LPT), Helium (HNT), and BitTorrent (BTT), have soared at least 800% this year despite a collapse in cryptocurrency markets since April, according to Messari.

“Seeing the Web 3.0 ecosystem grow exponentially since the beginning of the year and keep most of its profits even after the surrender in May is very positive for the crypto market,” Nick Mancini, research analyst for Trade The Chain told CoinDesk. “Higher prices are directly linked to increased demand and expansion of services in each shift, and this allows the ecosystem to continue to grow.”

Web 3.0 refers to a paradigm shift for the Internet operated by network subscribers worldwide and defined by a set of open, trust-minimized and decentralized networks and protocols that offer services such as computing, storage, bandwidth, finance and identity.

For example, the Ethereum-based Livepeer protocol provides a marketplace for video infrastructure providers and streaming applications, while Filecoin and The Graph provide decentralized file storage and data management networks. Helium uses blockchains and tokens to motivate consumers and small businesses to deploy and validate wireless coverage and transfer device data over the network.

The story goes on

Related: Bitcoin News Update for August 4, 2021

Messaris Tracker reveals that the Web 3.0 token subsector, spanning over 40 coins, has an overall market valuation of $ 25 billion, excluding Oracle provider Chainlink. (The Oracle provider is widely associated with decentralized financing and has a market capitalization of $ 10 billion).

However, looking at prominent projects like The Graph, Filecoin, Helium, and Livepeer, the market capitalization of Web 3.0 tokens is less than $ 15 billion. That’s only 2% of Bitcoin’s total market cap of $ 735 billion. But it’s comparable to the size of the Decentralized Finance Area (DeFi) a year ago. Messari data shows the DeFi subsector now has 137 assets and is worth over $ 50 billion.

Waiting for mainstream attention

While the Web 3.0 tokens far outperformed Bitcoin and other big coins this year, the sector has yet to experience the euphoria or attention of the mainstream that Bitcoin, Ethereum, DeFi, NFT and even Ethereum Layer 2 projects have seen since October 2020 have received .

That’s probably because the underlying technology is relatively complex.

“Web 3 is not as easy to understand as DeFi, and it is probably 12 months behind DeFi in terms of mainstream notoriety,” said Kyle Samani, co-founder and managing partner of Multicoin Capital. “We expect this to change as consumer-facing applications based on NFTs, social tokens and creator monetization increase over the next 12 months, such as Audius, Mirror and many others.”

The DeFi boom began a year ago and has remained intact to this day. The market capitalization of this sector has grown from around $ 5 billion in early 2020 to over $ 50 billion at press time.

Samani is confident that Web 3.0 tokens will catch up as DeFi gets a bad rap at times. however, there is no negativity associated with the idea of ​​a decentralized internet. Recently, Dan Berkovitz, commissioner for the Commodity Futures Trading Commission (CFTC), said DeFi derivatives could be illegal in the US

“Nobody really says that The Graph, an indexing protocol for querying networks like Ethereum and Solana and IPFS, is bad, while many people in the existing financial system say DeFi is bad,” Samani said. “As awareness of Web 3 grows, it’s hard to see anything other than general support and enthusiasm.”

Institutions chip-in

While mainstream adoption is still at least a year away, capital investors are putting money into Web 3.0 tokens. According to the official website, Multicoin Capital is invested in The Graph, Helium and Livepeer.

Grayscale, the world’s largest digital asset manager and the preferred place for institutional investors to grapple with digital assets, launched a Livepeer Trust in March. Rayhaneh Sharif-Askary, director of investor relations at Grayscale Investments, told CoinDesk last month that investors are diversifying into Web 3.0 tokens.

“It is a diversification within the asset class, whether investors want to use Bitcoin as a store of value or Ethereum for smart contracts,” said Sharif-Askary.

“And then the other applications build on top of these networks and solve other real-world problems,” she said, adding that Grayscale’s Livepeer Trust is structurally identical to the groundbreaking Grayscale Bitcoin Trust (GBTC) (Grayscale is a unit of Digital Currency Group, an investment holding company that is also the parent company of CoinDesk.)

Livepeer’s LPT token is up 1,050% this year. The log’s weekly revenue increased ten-fold to over $ 10,000 in February through June, according to data provided by Web3Index.

Doug Petkanics, CEO and co-founder of Livepeer, told CoinDesk that online streaming is a $ 70 billion market and accounts for 80% of internet traffic today. In addition, analysts predict the market will grow from $ 70 billion to $ 250 billion over the next five years, Petkanics said. The outlook for The Graph and Ocean Protocol also looks good, as Messari’s second-quarter report said.

Strong use case aside, many of these Web 3.0 tokens offer attractive returns through Staked, a platform that allows investors to generate returns from staking and DeFi without keeping their crypto assets.

For example, Helium’s HNT token currently offers an annualized nominal return of 8.7%, while The Graph’s GRT offers a 15% return and LPT offers a 30% return. The high returns led to a positive sentiment for these tokens, as reflected in the sentiment chart below.

“Traders have felt optimistic about them, which amplifies a network effect,” said Mancini. “Dealers benefit and get involved and in turn tell others about the oversized opportunity.”

The crypto market is much more than Bitcoin

Gone are the days when investors viewed crypto markets as synonymous with Bitcoin. While Bitcoin remains the leading cryptocurrency by market value, the recent underperformance compared to other coins suggests investors are digging deeper into digital asset markets to find investments with faster growth potential.

“Weekly data might not mean much, but if we look at three months, six months and 12 months, there is a clear shift away from Bitcoin to other subsectors, including Web 3.0,” said Jeff Dorman of Arca on a Telegram call .

According to Arcas research note released earlier this week, Bitcoin had “both bad up-capture and bad down-capture” this year. In plain English, Bitcoin struggled to outperform other large coins during the market-wide downturn after mid-April, but was also under-challenged when the market rallied in recent weeks.

According to Dorman, the data shows that some new investors are bypassing Bitcoin and Ether and jumping straight into other subsectors of the industry. Historically, investors have used the top two coins as gateways.

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What’s Bitcoin? A beginner’s guide to the world’s first cryptocurrency

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Bitcoin (BTC-USD) – the world’s first digital currency – has been a hot topic in financial circles, at least in recent years, and it probably doesn’t need to be introduced.

Polls suggest that the majority of Americans have at least heard of it. For laypeople, Bitcoin is a virtual currency (also known as cryptocurrency) that can be exchanged through online transactions and is stored in a digital ledger. Once traded for pennies on the dollar, a unit now costs nearly $ 40,000 with a market capitalization of nearly $ 750 billion.

Although the outlets that accept cryptocurrencies are still limited, Bitcoin is arguably the most easily exchangeable of all cryptocurrencies. A small but growing number of service providers are accepting the virtual currency, which can be used to buy goods in video games, exchange them for US dollars or other fiat currencies, and in some places even pay for goods and services.

Troubled beginnings

Bitcoin was founded in 2008 by an unknown person or group called Satoshi Nakamoto. Although feverish speculation has surrounded Nakamoto’s true identity – and some have claimed to be Nakamoto – it remains unconfirmed.

Nakamoto began working on the code that would eventually serve as the backbone of Bitcoin in 2007. A cryptocurrency whitepaper was first published in 2008 that created the original software reference implementation (the program that set the technical standards for Bitcoin). and served as an effective starting point for the cryptocurrency.

Bitcoin was then created as open source code, meaning virtually anyone could use it. To date, there are an estimated more than 11,000 cryptocurrencies in the market.

Given its libertarian beginnings, the main differentiator of Bitcoin is its decentralized nature. Unlike other forms of payment, no central organization or unit controls the currency or has the power to regulate the creation of more Bitcoin or transactions with it.

The story goes on

Transactions are secured using blockchain technology (more on this below), but no agency has the power to reverse transactions and there is no clearing period before funds can be distributed. It is precisely these characteristics that have raised regulatory concerns about the potential for theft, fraud and illegal transactions.

How it works

Bitcoin mining computer servers can be seen in the Bitminer factory in Florence, Italy, April 6, 2018. Picture from April 6, 2018. REUTERS / Alessandro Bianchi

The process of creating Bitcoin is known as mining. Miners perform intensive computer operations to verify transactions on the Bitcoin network. Mining rewards users for solving complex math problems. Bitcoin uses a “proof-of-work” network that confirms transactions by proving that a certain amount of computational effort has occurred.

Mining requires a significant amount of computing power, which has led to criticism of Bitcoin for the energy-intensive process being bad for the environment – a point recently raised by Tesla (TSLA) CEO Elon Musk, who is launching a firestorm in the crypto markets triggered.

Bitcoin uses blockchain technology, an innovation of the 21st century that makes it possible to link transactions via a digital ledger. The cryptocurrency was the first application of this technology, but has since expanded and used in other finance and technology applications.

Price bubbles & volatility

Bitcoin’s price action isn’t for the faint of heart, one reason why critics argue that it’s not stable enough to be a successor to fiat money. And whether or not Bitcoin has intrinsic value has been discussed intensively.

“Bitcoin is not a currency – it is an asset,” said Pavan Sukhdev, president of the environmental protection organization WWF International and former managing director of Deutsche Bank, in a recent interview with Yahoo Finance. He pointed to the extreme volatility and lack of support value as reasons for its illegality.

Eswar Prasad, a professor at Cornell University, was even more blunt. “Bitcoin was developed as a digitally anonymous medium of exchange that did not involve a trusted third party such as a central bank, but Bitcoin failed miserably in its stated goal,” he recently told Yahoo Finance.

For example, in the spring of 2011, the price rose from USD 1 to USD 32 within three months. In November of that year, Bitcoin saw a sharp drop to around $ 2 per coin. This was just the first of many price bubbles to make Bitcoin rise and fall – both fast and strong. And in December 2017, the price of a unit hit a new all-time high of over $ 20,000.

During this time, Bitcoin rose to the mainstream and shaped the first wave of “Bitcoin millionaires” (and later Bitcoin billionaires). The bull market was again volatile, dragging the currency below $ 7,200 in two years.

In this photo, taken in Kiev, Ukraine on April 13, 2021, the price of the virtual cryptocurrency Bitcoin is displayed on a phone screen.  Bitcoin cryptocurrency jumped over $ 60,000, media reported on April 13, 2021 in Kiev, Ukraine.  (Photo illustration by STR / NurPhoto via Getty Images)

In this photo, taken in Kiev, Ukraine on April 13, 2021, the price of the virtual cryptocurrency Bitcoin is displayed on a phone screen. Bitcoin cryptocurrency saw a surge of over $ 60,000, media reported on April 13, 2021 in Kiev, Ukraine. (Photo illustration by STR / NurPhoto via Getty Images)

However, since Bitcoin has now found its sea legs, it gained wider mainstream adoption and benefited from investments from well-known companies and banks. Bitcoin hit an all-time high of over $ 60,000 in April before falling back to just under $ 40,000 in late July.

Tesla, Black Rock, Inc. (BLK), Square (SQ), and BNY Mellon (BK) are just a few of the growing number of large companies that have found a way to break into an expanding marketplace. With more legitimate support, more people than ever have invested in the cryptocurrency.

Investment Opportunity Or Legitimate Currency?

The roller coaster ride of the Bitcoin price is complex and diverse and is increasingly subject to government policy. China has taken crackdown on cryptocurrencies and crypto mining, expressing its displeasure with the subversive nature of a decentralized currency. Since the vast majority of Bitcoin mining takes place there, restrictions on activity in the region can affect the price and contribute to wild swings.

However, the continued enthusiasm for cryptocurrencies in general, as well as a strong fan base, make it likely that Bitcoin will continue to gain acceptance among the public. The annual Bitcoin conference in Miami in 2021 drew 12,000 participants to discuss cryptocurrencies and networks. And some of his most loyal fans have even declared it a religion.

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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