I have been wanting to write this article for so long, but just procrastinated, thinking it’s just a fad, it will go away. Maybe by writing about it, I would be giving it too much importance. Just because some friends asked, it doesn’t mean that people are actually serious about it. But just the opposite happened, the more I ignored, the bigger it started getting. Advertisements all over the paper, TV, hoardings, there was no way one could ignore it. It hit me hard when I went on a recent holiday to Ranthambore and overheard the waiters talking about investing in Crypto. That’s when I realised how deeply entrenched it had got and how the advertisements in which celebrities endorsed it as a safe, futuristic, easy, etc. lured the common person invest in it.
I understand that any opportunity to earn money that too the one that’s being called ‘safe’, ‘future hai’ etc. and good ‘returns’ sounds exciting and attractive. But one must know the most fundamental principle or concept in investing i.e. Low risk- low return, High risk-high return. The moment there’s a deviation from this, investors need to probe more to understand the product.
Also I can’t understand this strange investor behaviour where on one hand, investors are scared to invest in highly regulated product like Mutual Funds and continue investing in FDs. But the same investor can oscillate to the other end and a plunge into crypto investments without a care.
Be that as it may, before deciding to invest in any product (Cryptic or not), know everything about it.
Know where you are investing
Firstly, in the case of Crypto, it is not yet recognised by any regulator in India. What does this mean? Why is it important for any investment product to be regulated?
The main role of the regulators is to maintain stability and integrity in the financial system in the country. Like for e.g. RBI(Banking & Finance sector), SEBI(Capital Markets, Mutual Funds), PFRDA(Pension Funds), IRDAI(Insurance). One of the most important objectives of the regulatory body is consumer protection and create an eco system where there are less possibilities of financial frauds. In the absence of a regulator there is no recourse for an investor in case of any investment mishap. Despite all the compliance process by SEBI, there have been scams in the stock market, so you can imagine what would have happened if it were not there! So, a regulatory environment is required for any investment product. Alternately you can go to the casinos too!
Know what the product is all about
Is crypto a commodity like gold, silver, metal? Is it a currency? Can we use it to buy or sell products? Does it have any underlying asset? Regulators are still not clear about what to call it and how to classify it. So, what are you investing in?
Know why you are investing in it
Is this investment meant for your short term or long-term goals? When should you exit the investments? Are you investing or trading? Due to lack of clarity on this, people are trading in it, basically speculating so you will see huge volatility in the prices. Trading requires constant monitoring
Know the risk involved in investing
Trading in crypto or any product for that matter requires constant monitoring because profits are made based on the fluctuations. So, volatility is the inherent nature of trading. There could be days when you will see the prices falling by 20-30% or more. Are you prepared for it? If yes, then good luck to you. If no, then stay away from it.
Don’t follow the herd, focus on what’s good for you.
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