In the recent time you must have the word 'Cryptocurrency' quite often. If you are not into finance and economics you must have wondered why Cryptocurrencies have become such a buzzword. Such was the frenzy about the Cryptocurrencies that it created curiosity amongst all the people alike. The stories of how Bitcoin created wealth for investors started to fly around. In a year, it went from $4,000 to $19,000. But the question still remains - what is Bitcoin & what is Cryptocurrency? Without much ado, let's try to understand what is Cryptocurrency and most importantly, whether you should invest it.
What Is Cryptocurrency?
Cryptocurrency is a digital money which is created to be extremely secure and anonymous. Cryptocurrency is a currency connected with the internet that uses cryptography. Cryptography is the study of a system for the secure communication. Basically, it is a process of converting decipherable data into a virtually uncrackable code to track purchases and transfers. In a way, Cryptocurrency tries to be extremely safe and secure. That is one of the reasons cryptocurrency is being deemed by many as the money of the future. Today, cryptocurrencies, notably Bitcoin, have become a global sensation known to most people.
Can Indians Invest/Trade In Bitcoin And Cryptocurrency?
The acceptance of Bitcoin for online shopping and transfer is illegal in India, but, if you want to gain from the volatility of the cryptocurrencies, your best bet is trading cryptocurrencies. In India, there are various Digital Currency Exchanges which help you to trade in cryptocurrencies. Forums like Zebpay and Coinsecure provide trading terminals for not just Bitcoins but various other cryptocurrencies. All these exchanges adhere to a strict self-regulatory code of conduct which makes it obligatory for all the traders to be KYC compliant for which they have to produce their PAN card, Adhaar Card and bank details when they sign up.
Things To Remember - Trading in cryptocurrencies is like trading in equity or commodity, totally legal. Having said that, traders should be greatly cautious and diligent while trading. Cryptocurrency market is known to be remarkably volatile. The exponential volatility of Bitcoin skyrocketed its value from $1,000 to $19,000 just in a timeframe of a year and then brought it back to $9,000, a month after hitting the all-time high level. In this kind of trading, you stand to earn a lot but always remember the downside is equally steep.
Cryptocurrency Trading Better Than Equity Investment?
Cryptocurrency and equity are extremely different to each other. One is a regulated and an organised asset class while the other is a decentralised and a new age asset class. But taking into account the popularity of Bitcoin, we have to pit these trading mediums against each other to understand which one fares better.
In equity, investors get to invest on a long-term basis and explore the full potential of the company. If you are absolutely convinced about a particular company or the business model, equity gives you the chance to become a stakeholder in its success. To identify the potential of the business, there is a methodical analysis to determine the strong points of the business and for risk management. Therefore, to a large extent, equity investment is safe, secure and rewarding.
Cryptocurrencies, on the other hand, are not safe and secure. But if you play your cards right, they can be very rewarding. At this point, there are very few people who have the working knowledge of how the price Cryptocurrencies moves. Currently, people are trading in the heavy volume essentially because they are the victims of the FOMO (Fear Of Missing Out) effect produced by media frenzy across the globe. In early January, Bitcoin surged manifolds giving high returns to the traders. But soon the price of Bitcoin and many other Cryptocurrencies corrected considerably. Not many people saw it coming as there is no systematic method to analyse the future potential of Cryptocurrencies. Furthermore, there is also a question about the legitimacy of Bitcoin. Many countries, like India, have yet not acknowledged it as a legal tender.