Wed. Jan 20th, 2021

Investing is about setting you free, and not making you addicted to a trading screen It was the technology stocks in the US till a few months back that were getting investors’ attention, but that got trumped more recently by the multi-bagger returns of some cryptocurrencies. There are newspaper front page comparisons of the value of bitcoin with the returns on the Sensex and gold, where the crypto emerges as a multi-bagger, giving better returns than others. There are interviews with crypto exchange owners that talk up the future value of this unregulated decade-old virtual currency. No wonder people feel like they missed the biggest gold rush again.

Crypto enthusiasts like to compare bitcoin to gold using analogies of ‘mining’ bitcoin—no matter that only keyboards are tapped and no underground mines are explored. The crypto logo has a shiny gold-like image to emphasize that association, but nobody yet has worn a ring or a necklace made of bitcoin for it is a fully virtual currency that is unregulated.

In India, the buying and selling of cryptocurrencies move in and out of being illegal. It was in March 2020 when the Supreme Court of India lifted a two-year ban by the central bank—the Reserve Bank of India—that had effectively stopped cryptocurrencies from being traded and exchanged. While the ban has been lifted, yet the discomfort with something that is fully virtual, has no underlying asset value and is unregulated, does not leave the minds of fiduciary-minded financial advisers and planners.

But the returns are mouth-watering and if the buzz around overnight crorepatis is giving you serious FOMO (fear of missing out), let’s go through this checklist—if you answer yes to all of them, go ahead and put your money in (notice that I hesitate to even use the word ‘invest’ in this situation) this virtual casino. I really doubt that many of the people rushing into crypto ‘investing’ would check any of the above boxes. It is a rush and most people are getting caught up in the feeding frenzy around the profits that some people seem to have made.

But, if you identified yourself as a zero-risk investor in March 2020 when the equity markets fell 30%, and some debt funds froze, are you serious about what you are about to do dabbling in something that can lose half its value in a day—as it did in March 2018 – or get an adrenalin rush and more than double in a day, as it did in November 2017? If volatility in stocks keeps you in FDs, what are you even thinking of when you think you can take the roller coaster ride of a cryptocurrency?

If the itch to dip your toes in this is very strong, use less than 5% of your investable amount in a year, to purely punt in cryptos. Stay away from ICOs—initial coin offerings—most of them are scams. Stay away from multi-level marketing crooks who will ask you to build crypto ‘downlines’ to make money.

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