With cryptocurrencies being legalised in India, the sector finally received a much needed fresh gust of wind. The move will potentially bring back investors – something that startups in the Indian crypto space have already claimed to be seeing. However, for many, cryptocurrencies are an entirely new concept, and will likely remain so until India’s own public blockchains are established, and the idea of decentralised digital currencies go mainstream.
That being said, if you are looking to get an early piece of the pie, it is important to look at the new technical investment space with caution and understand its benefits. Speaking with News18, Michael van de Poppe, chief executive of Dutch crypto trading news portal BonSanca and a regular trader at the Amsterdam Stock Exchange, took us through a number of key points that should always be kept in mind about cryptocurrencies.
Getting started on crypto
Talking about how investors can get started with their cryptocurrency investments, van de Poppe states that the key is to read whitepapers exhaustively, get a full understanding of the technology of crypto-coins, and avoid weaning information off social media. He says, “Usually, people enter the market and come to social media (for information), which is the hardest place to be on for your information. The whole marketing plan of exchanges comprises getting new members through leveraged trading, and getting pulled into that is the worst way to start.”
Continuing on what should be the first steps for a first-time crypto investor, van de Poppe further adds, “Start slow, read whitepapers, understand what blockchain is. Then, register on exchanges, through which ‘paper trading’ (or writing down trades without using actual money) is the first way to go, hence using a dummy account. After that, slowly start building your portfolio.” He insists that despite crypto opportunities seeming very spontaneous and being a bit of a hit or miss concept, there is no need to rush into any investment.
“There’s always an opportunity lying in the markets,” he adds.
Keeping investments secure
Once the basic learning procedures are clear, van de Poppe states that the next frontier lies in understanding the cyber risks, and ensuring complete online security of transactions and the investment portfolio.
Elucidating on the matter, van de Poppe says, “Use 2FA (two-factor authentication) for your exchange accounts. Do not use your primary mobile phone – ideally, an offline phone or device would do. The reason for this is simple – if you get SIM-swapped or someone steals your phone, they have the ability to access the exchange through your device, and in turn, your funds. Then, use a complicated password, and a different one for every exchange. Finally, don’t have all your coins on one exchange. This creates significant risk, as no exchange typically provides you keys for the coins you own. As a result, if an exchange gets hacked, you lose your investment. To prevent this, keep a large amount of the coins outside the exchanges, on secure offline wallets.
Investing 5 percent of your portfolio in a lower cap coin is a decent approach, while using 80 percent of your portfolio for one small coin would give you a very high risk.
Identifying the right bets
van de Poppe interestingly addresses a key question that many investors often have in the crypto space – should you put your money in established blockchains such as bitcoin and ethereum? Or, would you rather put your faith in newer, smaller coins that can potentially bring you a windfall?
On this, he says, “The more significant the potential reward (return on investment), the higher the risk. In the crypto space, this means that established currencies in the top 10 such as bitcoin and ethereum have lower risk than coins outside of the top 100 public blockchains. While one can safely invest in smaller cap coins (with lesser valuation and public trade), it should be done with proper research on the blockchain whitepaper. To factor these risks, disciplined risk taking and portfolio management should also be accounted for. Investing 5 percent of your portfolio in a lower cap coin is a decent approach, while using 80 percent of your portfolio for one small coin would give you a very high risk, and probably higher losses.”
In bad economy
So, with the nature of these digital currencies, would it mean that cryptocurrencies may remain immune to market forces, and hence not react the way public equities do in various markets? According to van de Poppe, while such a scenario is yet to arise, the initial signs have been positive.
He says, “The moment an economy gets into a recession, the potential of cryptocurrencies start to show. If cryptocurrencies become easily accessible and usable, they could potentially take over established national currencies. However, such a scenario is yet to materialise – thankfully, we have not experienced recession on such a scale, yet. However, the numbers from the economies of Argentina and Turkey largely suggest that the demand for crypto increases in economic downturns.”At the end of the day, van de Poppe believes that despite cryptocurrencies being at the bleeding edge of technology, it is, at the end of the day, a private asset, and the core nature of that still remains the same. “People should understand that national currencies are based on trust. When people lose their faith in the currency, it will lose its value,” he concludes.