The crypto fever has caught on many investors in a big way. So much so that many have started allocating a part of their earnings to various crypto assets for their potentially profitable nature. Some experts even hail cryptocurrency as a good investment for investors looking for direct exposure to digital currencies. Amidst all the hullabaloo surrounding crypto investments including crypto fixed deposits, the question that remains is if they are worth the risk.
Many people have shared on various social media platforms how investing in cryptocurrencies caused them to lose further. The upward temporary gain prompted many to invest further. This resulted in many of them suffering wide losses. The novelty of investing in cryptocurrencies has led many to inquire if they score over equities in returns or vice versa.
Volatility in cryptos
To begin with, did you know that cryptocurrencies are decentralised? The meteoric rise of cryptocurrencies as a successful investment option in the past has led many to ignore the scams that these digital currencies are prone to. The Morris coin fraud, the latest in the line of crypto frauds unearthed in 2022, caused losses up to ₹1200 crores to more than 900 investors who had parked their earnings in the ‘initial offering’ of the fake currency.
Many investors have questioned how despite cryptocurrencies being based on blockchain technology and secured by cryptography have been at the centre of a storm involving scams at both the institutional and retail levels. Cryptocurrency scams rocked the investment world in 2021 with digital currencies worth billions of dollars being recorded in illicit wallets. Fake websites have come up to give shape to unprecedented crypto scams that include the infamous non-fungible token (NFT) cons too.
Apart from the cybersecurity issues and price volatility that has led to the loss of its inherent value, cryptocurrencies are deemed useless by many. These cryptocurrencies are a liability if you do not find a buyer to pay for the same. It is only when you can earn profits on their sales that you realize the earnings from having shifted these assets turned liabilities on someone else’s shoulders.
The Finance Bill 2022 without validating the legality of cryptocurrencies announced a whopping tax burden of 30 per cent on all earnings from virtual digital assets (VDAs). The bill, aimed at specifically taxing cryptocurrencies, imposed taxes on all kinds of VDAs including cryptocurrencies, NFTs, and more. However, these exclude digital gold, central bank digital currency (CBDC) and other traditional digital assets.
While warning Indians against cryptocurrencies, the Reserve Bank of India (RBI) Governor Shaktikanta Das declared the use of private cryptocurrencies as a major threat to the macroeconomic and financial stability of the country. He warned crypto investors against investing at their own risk and dissuaded them from buying them. Also, the loss arising from crypto trading cannot be offset against any other kind of income, which means taxpayers cannot carry forward the losses suffered to subsequent assessment years.
However, many savvy investors remain undeterred by all these recent developments citing how risks and rewards are intrinsic to any investment and that timely decision making will enable them to earn huge profits from cryptocurrencies in future.
Putting money in equity instruments
The rise in the number of Demat accounts, especially by those aged under 30 years, explains the increasing interest of today’s youth in the stock market. True to its behaviour, the stock market is volatile. However, the benefits and earnings far outnumber the risks taken, thus, explaining its rising popularity. Those unable to understand the underlying factors responsible for stock movement park their money in mutual funds to avail fund managers’ experience for a minimal fee and benefit from market-linked returns.
Those new to the market must identify fundamentally strong businesses and keep themselves abreast of the latest news and developments surrounding stock movements. This helps them create a portfolio of some of the biggest businesses with enough working capital backed by a solid business outlook.
The earnings from stocks and mutual funds are subject to the rates in the given year’s income tax rate slabs.
The palpable difference
While there are no written rules regarding crypto ownership or to regulate their working, investing in shares means that you are entitled to part ownership in a business backed by its assets and cash flows. There is nothing to guarantee the credibility or authenticity of cryptocurrencies as opposed to equity investments in companies whose work is regulated by a host of regulatory bodies. For example, the Securities and Exchange Board of India (SEBI) is the principal regulator for both the BSE and NSE stock exchanges in India. Similarly, the Association of Mutual Funds in India (AMFI) regulates the working of the mutual funds sector in India and enables the disbursement of useful knowledge and insights concerning mutual fund investments in the country.
Both investments in cryptocurrencies and equities have their fair share of ups and downs. Though cryptocurrencies are the most accepted digital currencies all over the world, especially, with the recent Russia-Ukraine fiasco, expecting to earn only profits from investing in them would be nothing short of delusion. Though the Finance Ministry is working on a consultation paper to bring forth a regulatory framework on cryptocurrencies, the current deregulated form raises questions about their worth.
Of course, the tug of war between the bears and the bulls in the stock market has led many to unnecessary speculate on the market movement, conviction and patience in your stocks ultimately triumph over the fear and frustration of staying invested in the market for a long period.