Crypto - is it an emerging Asset?

One thing is clear: blockchain technology and the cryptocurrency industry are here to stay. Although no one knows how many cryptocurrencies or crypto exchanges will exist in a decade's time. This market is expanding at a rapid pace. Despite the fact that there is a lot of price speculation going on, there is currently no way to access the proper worth of any cryptocurrency.

The million-dollar question is whether you should invest in cryptocurrency or stay away from it entirely. Let's undertake a swot analysis first before jumping to any conclusions.

Strength: The main objective of cryptocurrency is to provide digital decentralized finance (DeFi) for peer-to-peer financial services via blockchain technology without the intervention of a third party or intermediary. The transaction is completed in seconds for a very small fee. The cryptocurrency market is operative 24x7.

Weakness: One must be technologically savvy and a technical chartist. This market is prone to a great deal of speculation. In a matter of seconds, your cryptocurrency can go from zero to the sky and vice versa. There is no such thing as a downside or an upside circuit. It has a tendency to drop drastically to the extent of even 90% in a week and then rebound. Crypto is a very volatile asset class, and those who are masters in chart reading can do better. There are no fundamentals in this market.

Opportunity: The cryptocurrency market has provided investors with a new asset opportunity. It is, however, intended for exceptionally high-risk takers and is best suited for HNI investors. A class that will make you rich instantly as well as bankrupt. As a result, your investment allocation to this market should not exceed 5%.

Threat: There is no regulatory or govt. authority involved, and without audit, the majority of crypto's success is unlikely. An increase in the number of Crypto (> 11500) and exchanges (>400) is also a threat, as the majority are not genuine. All cryptos are not supported by blockchain technology nor they are completely decentralized. This can be classified as operator-driven penny stocks, which can burst at any time. The threat of exchange and wallet hacking is always there. If someone forgets the password or fails to scan the barcode, your entire asset will vanish in minutes. Any incorrect transaction cannot be retrieved. Any delisting of crypto at any point results in a zero valuation to your portfolio.

A word of caution: There is a lot of price speculation going on. That is why it is not recommended for retail investors who do not understand stock, commodity, F&O, MF, insurance, and so on. Investors cannot withstand such shocks in price fluctuation and volatility. This market caters more to traders and speculators. 

Even if you want to gain experience, always stay in the top 10 cryptos by market capitalization. Tokens and Initial Coin Offerings (ICO) should be avoided. Also, don't be duped by a so-called expert who offers a guaranteed return of 10% per month through their Algo-based software. Spread out your investment like a SIP over time. SIP is a tried-and-true approach for reducing volatility while also reaping the benefits of buying at a cheap price.

Crypto War

After a drop of roughly 60% in May-Jun'20201, Bitcoin has returned back and appears to be unstoppable. In the stock market, a correction of more than 25% is generally seen as the commencement of a bear phase. In the Crypto market, even a 75% drop from the peak might restart the bull trend. Many people are unsure whether to invest in cryptocurrency or not. Fund managers and specialists are now split on the issue. Previously, the vast majority of fund managers were completely opposed to the concept of blockchain and cryptocurrency. Some of them have now softened their stance, although still not advocating for investment, but have begun to discuss the growing acceptance of cryptocurrency. However, the majority of them continued to use the wait & watch strategy. Only time will tell whether or not crypto-mania is a scam. However, it cannot be ruled out that a number of speculative forces are at play, influencing the outcome. There is no simple answer to whether a person should invest or wait. In the event of ambiguity, always adhere to certain basic rules. i) Do not invest more than 3% to 5% of your investible surplus. ii) Do not invest all of your money at once. Spread it out over time, or better yet, use the SIP method. Invest a small sum every month. iii) Never invest in a single cryptocurrency; instead, build a diverse portfolio. iv) Only choose from the top 15 cryptos. v) Avoid tokens and initial coin offerings (ICO) entirely. vi) Select one of the top ten exchange platforms to trade on. vii) Invest only that portion of the money that you will forget in the event of a loss. viii) From time to time, book a portion of the profit.

ix) Asset allocation, diversification, and rebalancing is the key to win.

Needless to say, you should be tech aware, have net banking enabled, and understand how to protect your digital assets by using strong passwords and two-factor authentication. Remember that 40% of people lost their entire asset when they forgot their password or, in the case of a fatality, their legal heir was unable to retrieve it.

The actual threat isn't that you'll lose whatever you've invested. You've mentally prepared yourself to see it at zero, so there's no pain. Let's look at two different scenarios to see where the actual pain points are. What if your X amount investment grows 10x, 100x, or 1000x? Consider the following scenario: You invested 1 lac and redeemed 10 lacs, and the price of this crypto then increased to 1 cr or 10 cr? Your happiness and accomplishments have all been taken out. This is the actual location of agony that you will never forget in your life. You rush back in and re-join the rally. Sooner or later, you will become a victim.

Consider another scenario: you invested 1 lac, it grew to 9 lacs, and you were expected to be able to redeem it for 10 lacs when the market crashed. You didn't have enough time to redeem it, so it eventually becomes 50,000. You've never been able to stand up to this suffering in your life. In crypto, there are no highs or lows, nor upper or lower circuits. There is no regulatory authority, unlike in the stock market. In the same day or week, any crypto can climb to 1000% or even more, and/or plummet to zero. As of now, it appears to be a gamble, with only 1% of people likely to benefit and the others 99% likely to lose. Which category you fall into will be determined by your discipline and emotions. Understand that you will never be able to eat the full cake. Always be content with your stake.