The past few months have been very interesting for the cryptocurrency market. Lots of high-risk projects failed, like Terra (Luna) and Vauld. And things are changing in big cryptocurrencies like Ethereum moving from proof of work to proof of stake.
But what’s more interesting is that even after the recent volatility in crypto giving heart attacks to many, a new report from UNCTAD states that 7.3% of Indians own cryptocurrency. Do you feel FOMO and wondering whether to invest? Let’s discuss this.
Estimated read time: 3 minutes and 23 seconds
Hint: Understanding more about crypto might save you from a heart attack.
Buckle up, here we go!
For starters, cryptocurrency is a digital currency and acts as a better alternative to our good old fiat currency; that is dollars, rupees, etc.
Transactions are performed digitally through encrypted technology known as the blockchain. Blockchain technology is a masterstroke because the transactions can’t be reversed or changed at a later date. Simply, less corruption.
Cryptocurrencies are out of any government’s control because it’s decentralised. A single person or entity does not take decisions. Check out this video to understand it more clearly and with more details.
The usage of cryptocurrency rose globally at an unprecedented rate during the pandemic. Some 19,000 are currently in existence, compared to 3,500 in 2018.
Why a sudden surge in cryptocurrency?
There are two main reasons for the increased use of cryptocurrencies during the pandemic.
First, the usage of cryptocurrencies to send remittances as it is cheaper and faster. If a family member of yours works in a foreign nation and sends part of his earnings to you, it is called remittance.
During the pandemic, the already high costs of traditional remittance services rose even higher during lockdown periods because of related disruptions.
Second, apart from the mode of payment, cryptocurrencies are part of investments and speculation. Currency depreciation and rising inflation have forced people to think beyond the traditional stock market to earn more money in a short time.
People are looking at cryptocurrencies to protect household savings even without understanding the risk factor.
Officials are trying hard to safeguard consumers from falling for the get-rich-quick scheme. Sebi recommended a ban on celebrity endorsements of crypto investments.
While we know that safeguarding the consumers is not the sole purpose of officials to discourage crypto ownership, that’s for another day.
What can be the use case of cryptocurrency for you?
In India, as of now, cryptocurrencies can’t be used for payments. Mainly because no one accepts it as payment but your friend might.
You may use it for international transactions, such as sending/receiving remittances and other cases.
Cryptocurrency as an investment?
As an investment, you can gain when the value of the currency increases. The currency value might increase or decrease over demand and supply.
Also, you can use these currencies to buy digital assets like NFTs (Non-Fungible Tokens) or take part in DAO (Decentralised Autonomous Organisation). Although the use case is very low for them because it is still in very early stages.
If we have to discuss the returns and risks of investing in cryptocurrency, we find ourselves with a double-edged sword. Few currencies have given returns over 1000% over a long-time but at the same time, these currencies have sometimes lost around 90-95% of value in a short time.
So it is highly volatile. I wouldn’t invest or watch the price charts if I had heart or blood-pressure problems. So, should you invest or not?
The technology and the thought process behind cryptocurrency are unique and fascinating. Things are changing every day in the crypto world. As a curious person, it is hard to keep away from the developments in the crypto market. And you shouldn’t, too.
Start by learning more about crypto and its use case. Who knows, in the future, you might work in a DAO or buy an NFT. You can start investing 2-3% of your portfolio in crypto. Only invest in biggies like Bitcoin and Ethereum in the beginning. Slowly, as you learn more, expand your investments to others.
What about the cryptocurrency tax?
Cryptocurrencies remain in a legal grey area in India because currently, crypto is unregulated but has been termed as virtual digital assets (VDA) for tax purposes.
The government will charge a tax of 30% flat (plus surcharge) on the gains from cryptocurrency. Also, no deduction is allowed to calculate the profit. If there is a loss, it cannot be set off with any other income and cannot be carry-forwarded.
There is a tax to be deducted at the source (TDS) @ 1%. The gifting of cryptocurrency is also taxable in the hands of the receiver.
We know the taxes look discouraging. It keeps most naïve traders away from trading and losing all their money in crypto.
Also, read about other current financial affairs here.
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