The world of cryptocurrencies is very enticing and is now much easier for a user to be able to access and tinker with. However, like every other option which involves financial considerations, this comes with its own set of do’s and don’ts. We will explore the very basics that an end user must familiarize themselves with, to be able to make the most of this market.
- How to enter the market – Step-by-step guide
As a user, you can enter into the market by signing up with any of the cryptocurrency platforms which allow Indian users to transact on their platforms. While registering with any platform is the easiest bit, it is important for you to know more about the nature of assets that you will be dealing with. Unlike the other forms of securities and assets that you might be familiar with, dealing in cryptocurrencies would mean you should have basic idea about the underlying blockchain technology, the country of its origin, and the social and political impacts that may bring fluctuations to the pricing of the cryptocurrency. In past, tweets from celebrities like Elon Musk have led to erratic fluctuations, and you need to be aware of all of these before you either end up buying more or selling it all.
Most importantly, you cannot put all your eggs in one basket, and buy a lot of the same coins for your portfolio, try to diversify on the nature of your investments.
- What all do you need?
You will need to:
- identify a cryptocurrency broker or cryptocurrency exchange;
- sign-up with the identified broker/ exchange to open an account;
- meet the KYC requirements, including provisioning of your PAN details;
- deposit cash (fiat currency) – this is usually validated by the UTR number for your NEFT transfer on most platforms;
- place your cryptocurrency order;
- select a storage method.
When you buy it from an exchange, its typically stored within the wallet attached to the exchange. If you do not want the exchange to store them, and you wish for it to be moved to a different more secure location, you can choose from between a hot or a cold wallet. A hot wallet is a crypto wallet which is stored online and runs on web-enabled / connected devices, like your computers, phones. These are convenient, but they are accessible via the internet, and hence, a certain level of vulnerability persists.
As opposed to this, a cold wallet is a crypto wallet which is not connected to the internet and take the form of any external device like a hard drive or a USB pen drive. As it is stored offline, it is treated as one of the most secure forms of storage; with a keycode associated with it. As a user of a cold crypto wallet, you have to ensure that your device remains safe and that you possess the code, or you may never be able to get your cryptocurrency back. This has happened, so be cautious.
- Step-by-step instructions on what to do if you want to exit the crypto/Bitcoin industry
As the industry is volatile, there is no set or prescribed method to exit this industry.
- One of the simplest solutions would be to set a price target and exit the market at that time. For instance, if you purchased a particular crypto asset for INR 2000, and you can set your target sale price at INR 2500 and accordingly sell your crypto asset once it hits that amount.
- You can also choose to exit by a return percentage; and accordingly once that target is reached, you can sell half your investments and sell the next half at a similar target return price.
- Some also prefer exiting by portfolio. For instance, if you have made an investment of INR 500,000/- and after a set period of time, you feel the need for about INR 750,000/- if your crypto asset portfolio has reached that limit, you may prefer selling your assets and exiting the market.
- It is also possible that you set a day, a week or a month to sell a percentage of your investments. Let’s say you wish to sell of 10% of your investments in a periodic manner, by end of 10 cycles, you would have then sold off the entire investment.
These are not the ideal scenarios, but these are one of the many that are available to you to exercise.
- What are other alternatives to joining?
Considering not all would be comfortable buying cryptocurrencies directly, owing to the volatility, you can always consider investing in the companies which are connected to cryptocurrency. This would be a comfortable proposition for everyone who intends to invest in companies with fare greater regulatory oversight and might still keep you vested in the blockchain/ cryptocurrency ecosystem.
As a parting advice, as is the case for any other form of investment, ensure that your financial risk appetite, investment goals are aligned with the expectations and possible outcomes of this particular venture. It is highly speculative investment and craves for you to invest with great caution and careful consideration.
Views expressed above are the author’s own.
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