Planning to invest in cryptocurrencies? Key things to consider

Cryptocurrencies have garnered a lot of interest among retail investors in India, a trend in line with an interconnected globe, as market enthusiasts do not want to miss an opportunity in what could become future digital currencies. However, the current round of interest in cryptos of all hues is fuelled more by fashionable comments from celebrities or tweets from tech czars.

As a prudent investor, however, one must not forget that cryptocurrencies are high-risk, high-reward investment options and any investment decisions, therefore, must be based on smart thinking, factoring in volatility and sudden market crashes.

A cardinal principle has to be that an investor is not taking any kind of loan to invest in cryptocurrency, said Sathvik Vishwanath, CEO and Co-Founder of Unocoin.

“These markets are highly speculative and no one has obligation to buy back these cryptocurrencies from the investors in the future,” he said.

Due diligence and research like an investor does while picking stocks and mutual funds should be done for investment before picking cryptocurrencies, said Kumar Gaurav - Founder and CEO, Cashaa. Investors should learn about the projects that it is backing and their scope of growth, he added.

While speaking to CNBC-TV18, CoinDCX spokesperson added that monthly capital allocation commensurate with one's risk appetite and preferably investing in top crypto tokens after doing adequate research is imperative.

If a cryptocurrency has been in the market for long and is backed by a reputed team or dedicated community then the chances of its growth and credibility get better.

As per Cashaa's Kumar, the value of cryptocurrencies depends on market supply and demand. Hence, expecting a quick return is not the right investor attitude.

“Learning and making an informed investment because users believe in the project is what they must follow,” he said.

According to CoinDCX spokesperson, adopting a long term approach will help in reducing the risk factor in crypto investment. Crypto assets have given multi-fold returns over the past years and hence it's advisable to adopt a long-term approach while investing in them.

Another significant risk involved in investing in cryptocurrency is that they carry volatility risks as stock markets do, or arguably even higher risks than equities. A sharp uptrend or downtrend can make or break fortunes in a day.

So, CoinDCX spokesperson suggested that one should enter at key support levels and always maintain a strict stop loss for short-term trades considering the high volatility seen in this asset class.

There is also security risk involving as simple as a virus in phone or laptop which could sweep the entire investment.

Hence, Vishwanath said that investors should follow the financial discipline and following best security practices to bring dis-proportional returns in the medium and long term.