Cryptocurrency

by Tanish goswami - Jun 02, 2022

Dear Investors,

Crypto has shattered in the near times but the buzz has gathered another resurrection as the curious young lads are finding this as a lucrative investment avenue, but this risky avenue, with a spell of time, acted as a turbulent force for the commoners. So, before we make any investment decision, we must acquire a pearl of wisdom or elementary knowledge of the investment and its other alternatives.  

What Cryptocurrency is?

Cryptocurrency is a decentralized digital or virtual currency secured by cryptography, an encrypting technology. It refers to the numerous encryption algorithms and cryptographic techniques used to secure the entries. These currencies, unlike paper money, have altered the way value is exchanged.

Types of Cryptocurrencies:

Crypto has evolved a lot and bitcoin has always been a pioneer. Bitcoin was the first blockchain-based cryptocurrency and continues to be the most popular and valuable one. Currently, we have thousands of other cryptocurrencies in the market with different specifications. So, let us know a little bit more about Bitcoins.

  •  It is the first cryptocurrency that launched in 2009 and currently has a total market capitalization of around $858.9 billion, circulating through 18.8 million Bitcoin.
  • It is a digital currency which makes it easier to divide, transfer and store.
  • Bitcoin's competitors include Litecoin, Peercoin, Namecoin, and Ethereum, among many others. The aggregate value of these currencies exceeds 1.8 trillion, with Bitcoin accounting for a staggering share of around 46.5 percent of the total.

Associated Risks:

All happiness comes at a cost, a hidden one, and cryptocurrency is no exception to this rule. Cryptocurrency involves a plethora of risks for its customers. Some of the major ones include:

  • Bitcoin facilitates the movement of funds between parties in the absence of a trusted third party, such as a bank. It might appear to be a convenient method however; the anonymity of bitcoin transactions makes it simpler to host unlawful activities such as money laundering and tax evasion.
  • Bitcoins have always been a volatile vulture experiencing dramatizing hikes and weighty declines. They are avenues of risk, which was even evident in the December'17 incidence. The incidence witnessed a rise of $17,738 per Bitcoin in December 2017, followed by a drop of $7,575 in the following months.

·         Investors such as you in the Indian market, whether you invest in exchanges directly or through mutual funds, have the backing of SEBI as the safe guarder and protector of your money and rights. So, if you have a problem with your investment, SEBI has the authority to assist you and resolve the issue. Unlike SEBI, no one regulates or governs cryptocurrencies, and investors have no one to rely on for safeguarding their rights and money. Many people are hesitant to adopt this investing business due to the lack of regulation, wallet hacking, and the fear of an economic downturn.

Comparison:

Drawing distinction has always been a witty choice and a step further to an informed decision. Hence, drawing a line of difference between mutual funds and cryptocurrency here becomes necessary. Some of the major differences are:

Cryptocurrency Mutual Funds
Primary Purpose Medium of Exchange Better security in Investment
Legality No legislative laws and hence illegal or not legal in India. Legal and supported by Government of India.
Governing authority Decentralized meaning no supervisory authority. SEBI through AMFI.
Risk Extreme as no legal protection. Risk limited to market volatility and hence better secured than cryptocurrency.
Returns Completely market driven, highly volatile and unstable as fluctuation occurs momentarily. Quite stable and better assured through expertise involved of professionals.
Transparency Limited transparency as the exchanging parties and commodities or currencies form is unknown. Regular updates on NAV value and other holding through AMC or another website makes it extremely transparent.
Withdrawals Complex mechanism and require time. Ease of withdrawal at any time subject to tax and mutual fund guidelines.

What Should you Invest in Cryptocurrency or Mutual Funds?

Being a resourceful investor, you should invest in the prospect satisfying your needs. But some of the deciding factors could be:

  • Your knowledge: Knowing the investment instrument from shallows to deep is a prerequisite. If you possess complete knowledge, you should go for direct investment, but otherwise, mutual funds are your go-through mechanism.
  • Time constraints: In this dire world, slight negligence or delay could cost you a handy sum. Hence, if you cannot invest your time consistently, mutual funds could solve this by assuring your funds while multiplying them at minimum cost. 

Conclusion:

Mutual funds are a better regulated and low-risk funds multiplying mechanism that can aptly assure and defy the increasing inflationary pressures that have overshadowed the bank returns and, in essence, have caused a decrease in the real worth of your money in the times to come. It emerges as an optimum solution for the investors with either time or knowledge deficiencies or even both.

However, the penultimate power of decision-making resides with you being the customer or investor, and so do the responsibilities of selecting a wise investment prospect according to your needs, purpose, and, most importantly, your risk-taking appetite.

Notes: Cryptocurrency, crypto, and bitcoins at times are used as synonyms and hence depict the cryptocurrency market as a whole.

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