Apart from bitcoin, which is currently trading at over $23,233 apiece, Indians are also lapping up lesser-known virtual currencies such as ethereum and ripple.
“There’s a view among investors that bitcoin, like gold, will provide a hedge against weak economic parameters. This is prompting several well-heeled investors to buy bitcoin and other cryptocurrencies,” said Sathvik Vishwanath, CEO of Unocoin, a cryptocurrency exchange.
Bitcoin — which accounts for more than 65% of the global cryptocurrency market — has beaten almost all traditional asset classes in terms of returns over the past one year. While gold has rallied an impressive 25%, the 50-share Nifty has gained just over 11% and one-year bank fixed deposits (FDs) are locked in a 6–6.9% interest rate band. In contrast, virtual currencies have done well for investors, with major ones booking 100-200% gains since December last year.
“Returns have been phenomenal for people who had invested in Bitcoin and other cryptos at the beginning of 2020,” said Vishwanath.
There are nearly two dozen cryptocurrency exchanges in India, accepting trades across all major cryptocurrencies. These enablers log $60-80 million worth of trades every day, up from an average of $3-5 million trades a day in January. Besides small investors and high-net-worth individuals, a few family offices have also invested in cryptos. The flight of investors to an unproven asset class, such as bitcoin, has unnerved wealth managers who usually recommend stocks, fixed income, mutual funds and structured investment products.
“The standard deviation of bitcoin is twice more than that of Nifty… You never buy a high-swinging asset at the top-end of the price curve. The risk-reward may not be good at such levels. Now is not a good time to buy bitcoins,” said Feroze Azeez, who heads Anand Rathi Private Wealth Management. “Post the vaccine success and the smaller-than-expected US stimulus, a price correction in cryptocurrencies cannot be ruled out as well. One can buy bitcoins if prices fall to $14,000 in the next six months.”
Popular cryptos such as bitcoin are quite volatile on the bourses, making them risky for investors with large exposure. That apart, there are rumours of the government mulling a complete ban on cryptocurrencies in India.
“My advice would be to invest only a small portion of wealth that investors are ready to write off… We don’t know what stand the government would take regarding cryptocurrencies,” an Ahmedabad-based wealth manager, who is also a bitcoin investor, said on condition of anonymity.
