It's a depressing time for investors when the value of equities and cryptocurrencies are falling and concerns over rate hikes, inflation and geopolitical tensions refuse to fade away.
Crypto or stocks: As both witnessing selloff, what should you prefer?
- Media reports suggested that the goods and services tax (GST) council has constituted a committee to consider the proposal to impose a 28 percent tax on cryptocurrencies.
Equity benchmark Sensex has fallen 7 percent this year while a major cryptocurrency Bitcoin has plunged 33 percent in the calendar year so far, as per data from Investing.com.
In the last 30 days, Sensex has fallen almost 9 percent while some of the crypto tokens and altcoins such as Terra have fallen up to 93 percent. Bitcoin has fallen about 27 percent while Dogecoin has lost 28 percent in the last 30-day period.
Are cryptocurrencies good investments? Should one remain invested in them or prefer stocks over them?
Cryptocurrencies have seen a meteoric rise in the past, giving mind-numbing returns to investors. Their fame spread so fiercely among investors that even Warren Buffett, who once called cryptocurrencies 'rat poison', invested $1 billion in shares of Nubank- a neo bank that allows users to put money in a Bitcoin exchange-traded fund (ETF).
Crypto or stocks?
Cryptocurrencies have been extremely popular among new-age investors but the popularity of an asset class cannot be the sole factor for determining that a particular asset is investment-worthy. After all, cryptocurrencies do not carry any underlying assets. Stocks, on the other hand, have businesses and also pay dividends.
"Cryptocurrencies do not have any underlying assets. My long-term view is that crypto will eventually crash," said G Chokkalingam, Founder & Head of Research, Equinomics Research & Advisory Private Ltd.
The fact is that despite growing institutional interest and acceptability, investors are staying away from cryptocurrencies due to the concerns which are weighing on stock markets too- aggressive rate hikes, geopolitical tensions and faltering economic growth.
In India, crypto investors have additional worries. Media reports suggested that the goods and services tax (GST) council has constituted a committee to consider the proposal to impose a 28 percent tax on cryptocurrencies. Currently, 18 percent tax is levied on services provided by crypto exchanges.
In Budget 2022, the Finance Minister announced a 30 percent tax on income from cryptos and other virtual digital assets. Meanwhile, 1 percent TDS will also apply on crypto transfers from July 1, 2022.
All these global and domestic factors are weighing on cryptocurrencies. On the other hand, the stock market is also falling due to concerns over rate hikes, foreign capital outflow and global economic growth.
If we say it in a simple way, cryptocurrencies are riskier than equities and much more volatile also. Only an investor with a high-risk appetite should consider cryptos for investment.
"Currently if investors want to select anyone from stocks or crypto, my advice is to choose wisely in both of them. Crypto has so much volatility and if you enter at the best price investors will get higher returns, however, taxes are very high on crypto. While stocks can give you moderate returns with the moderate risk," said Kshitij Purohit, Lead Currency at CapitalVia Global Research.
For moderate risk takers, stocks are the best choice for investment as the investing environment is full of uncertainty and negative sentiments are the best time to add stocks that have good fundamentals, growth visibility, competitive advantages, and reasonable valuations.
"India is currently in a better position in terms of economic strength compared to its peers and in the medium to long term, the economy facing stocks like banking, infrastructure, capital goods, and housing are poised to outperform other sectors," said Amit Pamnani, Chief Investment Officer, Swastika Investmart.
"Crypto is unlike stocks, properties, and commodities; there are no underlying assets to back crypto. Crypto valuation and fundamental analysis are nearly impossible and any adverse regulatory action can prove to be fatal for cryptocurrencies. Crypto supporters often claim that cryptocurrencies are an inflation hedge instrument and protect against stock market & other asset classes volatility. However, in recent times cryptocurrencies have followed the downward trajectory of indexes like the NASDAQ, thus raising questions over such claims," said Pamnani.
He recommends taking advantage of current market falls to buy quality names and fundamentally sound companies, and investors with a very high-risk appetite may add cryptocurrencies during the current dip.
Cryptos are here to stay
Despite their high volatility and the fact of no underlying asset, cryptocurrencies cannot be rejected easily and outrightly as they have been accepted by a large base of investors.
“Cryptos are here to stay. Apart from the 300 million growing crypto users, many global giants and emerging economies have adopted crypto for revolutionary benefits like trust fewer transactions, verifiability, divisibility, borderless transferability without intermediary restrictions and costs," Khaleelulla Baig, Co-founder and CEO of KoinBasket underscored.
"It is quite common with high-risk assets like stocks and cryptos to react wildly to harsh market conditions. Sound crypto projects have weathered many harsh market conditions in the past. Long-term investors in fundamentally sound crypto-assets should not panic and look to accumulate more via SIPs. Investors should also avoid getting into illiquid cryptos, high-frequency trading, and leveraged trading and keep their portfolios fairly diversified to mitigate risk and optimize returns in the long run," Baig said.
Avinash Shekhar, CEO of ZebPay is bullish on cryptos while global financial markets are witnessing a downturn due to inflation and the Russia-Ukraine conflict.
"Market fundamentals continue to be strong and investors with a mid to long-term outlook will benefit from their crypto investments. Investors who 'buy the dip' generally see the highest returns. However, considering current market volatility, it is prudent to be cautious at this stage and wait for the right opportunity to invest further," said Shekhar.
"Rupee cost averaging is advisable, especially when it comes to volatile markets like crypto. Averaging out the cost of acquisition helps mitigate risk and mid to long-term investors will benefit from this strategy," Shekhar added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies and not of MintGenie.
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