HIGH GAINS
per cent over the past year. Some of the other popular ones have fared even better (see table). “Prices are rising and that is attracting a lot of Indian investors to bitcoin,” says Mohit Kalra, founder and chief executive officer (CEO), Coinsecure, an exchange for buying and selling crypto currencies. “Many tech-savvy Indians in the 30-40 age group are attracted to this alternative asset class and are currently experimenting with it,” adds Sathvik Vishwanath, CEO and founder, Unocoin. According to some experts, supply constraint means that the price of bitcoin may rise further. “The way it has been created, only 21 million bitcoins can be created. About 16 million have been mined already. If demand remains strong, you can expect its price to appreciate over the long term,” says Saurabh Agarwal, co-founder and CEO, Zebpay. Bitcoin Ethereum Bitcoin cash Ripple Litecoin Unregulated and volatile: Investors betting on crypto currencies need to be aware of their risks. community was splitting had also led to a sell-off. “Whenever there is adverse news related to a crypto currency, such as of a theft or a scam, its price tends to fall,” says Udbhav Tiwari, policy officer at the Centre for Internet and Society, Bengaluru. Before taking the leap into this asset class, give thought to whether you can stomach such high volatility. The anonymity of those who buy and sell crypto currencies is another source of risk. If someone steals cash from you, it is difficult to trace that person. Similarly, if somebody hacks into your computer or into the cloud (where your wallet is stored) and steals your crypto currencies, tracing the thief is difficult. "Indian crypto currency exchanges follow a higher level of KYC (know your customer). If somebody from within India steals your crypto currency and tries to sell it on an Indian exchange, it may be possible to trace the stealer," says Tiwari. It is almost impossible if the thief is from outside India. 642.5 323.6 2,682.1 Most financial instruments in India fall under the ambit of one of the key regulators – the Securities and Exchange Board of India, the Reserve Bank of India or the Insurance Regulatory and Development Authority of India. In the case of crypto currencies, there is no regulatory authority. If something goes wrong, there is no authority you can turn to for redress.
Crypto currencies are also highly volatile. Towards the end of June, a rumour that the founder of Ethereum had been killed in a car crash sparked a 20 per cent decline in its price. News that the bitcoin NA 3652.2 74.4 1,773.3
Several Ponzi schemes have mushroomed:
Several Ponzi schemes centred around bitcoin have sprung up. “Some elements are promising an 8-10 per cent guaranteed return each month to people who invest in bitcoin through them. Steer clear of them,” says Kalra.
Altogether 1,077 crypto currencies exist today, with new ones being launched practically every day. After buying bitcoins from an Indian exchange, you can enrol with an international exchange and trade your bitcoins for other crypto currencies. Stick to the established ones. “Many of the new crypto currencies being launched are scams with their promoters just out to raise money from gullible investors. They are not even backed by a white paper (the equivalent of a prospectus in an IPO). Find out about the people and the team promoting the crypto currency because maintaining and promoting the currency are the key to its success,” says Kalra.
Some dealers (not exchanges) might promise you that they will help you purchase bitcoins even if you pay them in cash (normally you do a bank transfer to the exchange). Multiple risks are involved here. “The price they charge you is likely to be higher than what you will get on an exchange. Besides, there is always the danger that they may take the cash and not transfer the bitcoins to you,” says Hesham Rehman, cofounder and CEO, Bitxoxo.
Finally, there is always the risk that the bitcoins you hold could be stolen by hackers (see box for precautionary measures against hackers). What should you do? To curtail risk, limit your exposure to crypto currencies. “This is what we call an exotic asset class. Exposure to them should depend on your risk-taking capacity. I would not advise people to invest more than 10 per cent of their portfolio in it,” says Arvind A. Rao, financial planner and founder, Arvind Rao & Associates. Start off by investing a small amount initially that you can afford to lose. Once you have gained experience, take the SIP (systematic investment plan) route. Since it is a volatile product, averaging out the cost of purchase will help. Investors should also not enter this asset class with an investment horizon of less than six months.