I bought my first crypto-currrency on 31 Dec 2020 (Etherium). I spent 50,000 rupees. The present value of my Etherium asset is 1.45 lakh (May 2021) and I don’t plan to sell it at all. Let me explain.
Before I begin, this post is only for those who are not sure about this Crypto thing and are wondering what the first right step should be.
If you don’t own any stock, then forget about Crypto. That would be just weird. First understand how stock markets work, enter the market – see your money grow and then think about Crypto.
You already hold stock assets? Cool, let’s talk about Crypto. I will not focus too much on short-term trading because I don’t understand that much myself. My focus is on long-term growth of your money.
Buying a crypto-currency (like Etherium or BTC) essentially means buying an asset whose price is totally dependent on supply and demand – there is no physical real-world value. But then even a 500 rupee note is exactly that, isn’t it? After all, the physical real-value of the paper on which a currency is printed is negligible.
So what’s the difference between how a 500 rupee note works and how a Crypto works?
The value of a 500 rupees note is also dependent on supply (mostly) and demand but the supply is 100% controlled by RBI – it prints those notes – nobody else can.
But crypto’s are not generated by any central bank. By way of a technological hack (blockchain), the supply of any crypto currency is fixed (or let me say – severely limited, more so for those currencies that have been around for a long time – like BTC and Etherium). And this means that if enough people keep buying crypto-currencies, the price will keep going up. If people start selling what they have, the price will go down.
Sounds similar to stocks? It is. But the difference is – at some level a stock-price is also supposedly linked with the real valuation / business-performance of the company whose stock you own. In case of crypto – it is 100% supply and demand. It’s economics at its most basic.
And in my opinion, this is all there is to know about Crypto to start buying it.
Why did I begin with Ehterium?
When I bought it, BTC had highest market-cap, Etherium was at no. 2 (am not cross-checking it, but very likely that’s the case even today). So I just went with no. 2 because:
- it’s cheaper than no. 1, and
- it is still safe because it’s unlikely that people will stop buying Etherium any time soon – and that means the price will keep going up, year after year. It has some solid backers (Google it).
Last week, when BTC’s price went down I bought BTC too (worth another 50k). It is worth 54k as I write this post. I don’t think I am going to invest in random cryptos – there are hundreds of them. If you have high appetite for risk, you can buy whatever you feel like. If your bet is good, you will make more money than buying Etherium or BTC. All that you need to guess right is, will the rest of the world keep buying it year after year or sell it off?
How to actually buy any of the cryptos using Indian money?
When I asked around in Dec, Wazirx and Coinswitch by Kuber were the most recommended exchanges (I have used both). You download their app, do the KYC and then deposit money from your bank account to the exchange.
Using the money deposited in the exchange, you buy whatever currency you want. That’s your crypto asset. You can keep this asset in the exchange itself (if you plan to sell soon) but like me if you don’t plan to sell any time soon, then best practice is to withdraw your asset and keep it with you. Why should you ever withdraw the asset when eventually you need the exchange to sell it and get back Indian rupees anyway?
Well, because exchanges get hacked.
An exchange-hack is very different than a bank getting robbed. When a bank gets robbed, you can still claim your money. When an exchange gets hacked, there is no way to show that it was not ‘you’ who withdrew your asset (the same technology that enables crypto, creates this issue).
So I would suggest you take out the asset from the exchange. You can keep your crypto with yourself in a device like nano ledger (looks like a pen-drive but essentially stores the unique code for each crypto transaction).
Whenever you want to sell your asset – you can transfer the asset to any exchange (using your physical device), sell the crypto in that exchange and receive the money in INR. Then you transfer the money from exchange to your bank account. As simple as that. You may have to pay Capital Gains tax.
What if the government bans Crypto?
Government can ban an exchange (another reason, you shouldn’t keep your purchased crypto in the exchange). But banning Crypto is not implementable.
For example let’s imagine you hold 1.5 lakh worth of Etherium with you and when you plan to sell it, exchanges in India stop working. What do you do?
Well, sell it in some other exchange of any country (if you have to). You will then end up owning “money” in that particular country’s currency (say if you sell it in a US exchange, you will end up owning dollars). That’s still your money though. Figure out a way to transfer those dollars to your Indian account!
There is so much money in BTC / Etherium today that if GoI stops Indian exchanges, multiple startups will flourish just to enable you to receive your foreign currency asset (be it dollars or anything) to your Indian account in INR. So ‘ban’ has zero risk per say to your money – it will only cause inconvenience and raised transaction cost perhaps.
Also, most likely, when GoI will finally realize that it cannot ban Crypto, it would rather let the exchanges run so that at least the capital gain tax flows to the Government and not gets wasted.
So yeah, this is all that I have learnt and had to share. Before I end, few cautionary words – only put that much money in buying Crypto that you don’t need now and would have used to invest in buying more stocks / MFs / gold etc. anyway.
Some people do make money by short-term buying and selling but I am too busy doing other interesting things in life to waste it on becoming mildly richer by continuous buying and selling. My post is only for those who are in it for the long run and understand that eventually the benefit of compounding pays off so much more than this whole daily-trading business.
Alright, hope this post helps you get started. The best way to learn is to put in some real money. All the best.