Ashish Nitin Patel made his first bet on bitcoin in late 2017 amidst the brouhaha around cryptocurrencies. He jumped in to make a quick buck, like most investors back in the day. But, as he learned more about the value proposition of the digital tokens, Patel stuck around.Initially the intention was a short-term investment, but now I firmly believe that some good projects (hedge funds, ETFs) can deliver good gains of about 5-10X over a long period of 1-3 years,” says the 28-year-old tech professional.
After its first run-up three years ago, bitcoin, the most popular cryptocurrency, is making headlines again on gaining nearly 242 per cent year to date, to trade at all time high levels of about USD 24,000. In the last four months alone, bitcoin’s price has surged by nearly 104 per cent.
Cryptocurrency exchange CoinDCX has reported a 3X QoQ growth in trading volume and 4X QoQ growth in daily active users. In October alone, it has registered a 25 per cent MoM growth in the number of users and 21 per cent MoM growth in average trade volume. Zebpay, one of the early exchanges in India, has recorded a 270 per cent QoQ surge in trading volume and 218 per cent increase in number of users trading in 2020.
However, investors this time are in for the long-haul.Take the case of Delhi-based Shruti Vakhariya who made her first cryptocurrency investment in October this year. “I’d been meaning to buy bitcoin for a long time but only took the plunge after thoroughly reading up on the digital tokens and their applications,” she says. “My current holding has gained over 35 per cent but I’m in no hurry to cash out. I see a lot of value in cryptocurrencies and want to remain invested for a few years to see where this is going.”
Digital-asset exchanges also confirm the trend that this time investors are not entering the space in the heat of the market sentiment. Vikram Rangala, chief marketing officer, ZebPay says users are behaving like long-term investors by holding on to their investments instead of quick buying and selling, as was the case during the 2017 rally.“In the two-week period of November 5-17 that kicked off the current bitcoin rally, despite a 46 per cent increase in BTC-INR (bitcoin-Indian Rupee) volume and a 48 per cent increase in the number of unique customers trading BTC, our withdrawals stabilized,” Rangala pointed.
This behavior is in contrast to the 2017 run when most investors ploughed in a small amount and cashed out during the upsurge as they didn’t particularly wish to wait for a long time to receive the pay-offs, say industry stakeholders.“Our daily transaction volume right now is less compared to the 2017 rally but that’s because investors are not jumping in due to the fear of missing out,” says Sathvik Vishwanath, co-founder and CEO, Unocoin. The trend seems to be playing out globally. A report by blockchain and cryptocurrency analysis company Chainanalysis said there are fewer sellers in the market as compared to three years ago.So, what has changed in the last three years?
Increasing Awareness and Adoption
Monark Modi, founder and CEO, Bitex, a UAE-based digital currency exchange and a professional trading platform, says with increased awareness around cryptocurrencies, speculative trading has gone down.In fact, the 2017 rush opened the floodgates for small as well as institutional investors to seriously look at the space. Patel is a case in point. What started as a punt for him now accounts for 20 per cent of his total investment portfolio.Moreover, with improved tech and innovations over the years, emergence of crypto related index funds and hedge funds have made cryptocurrencies a legit alternative asset class to include in one’s investment portfolio.
“The biggest change between 2017 and today is the rise of exchange traded BTC futures and options. The cryptocurrency derivative markets are substantial now. There are many ways to hedge against sudden price moves (of bitcoin),” explains William Quigley, MD and co-founder, Magnetic Capital, a US-based investment and incubation firm, and founder of WAX, a blockchain built for video games. “This has the effect of reducing price volatility that is strictly due to speculation.”
“We’ve seen a substantial shift in people warming up to bitcoin and other cryptocurrencies as a new asset class and not just a gamble,” says Rangala. Take the case of Viraj Shah. He entered the cryptocurrency space in August this year to diversify his portfolio. “With the lockdown, I was reading up a lot about diversifying my portfolio and I considered investing a small percentage of it in crypto currencies,” says the 20-something entrepreneur. Growing use cases of digital tokens has also supported their adoption.