How would you view an advert that tells you to invest in cryptocurrency in monthly investments —a mutual fund investment or a crypto investment? Well, clearly this amount to locking money in the still unregulated asset class of ‘digital currencies’, but cloaked as a legit investment scheme.
With an advent of crypto exchanges and the ever-growing popularity of digital currencies, some crypto schemes are being offered under the veil of commonly-used investment schemes.
Crypto SIPs
Crypto SIPs, crypto deposits and managed crypto portfolios have caught the fancy of some investors. Those who are accustomed to traditional investment avenues such as mutual funds, deposits, and curated portfolios but are yet not sure of the future of cryptocurrency tend to get wooed by these alluring crypto schemes.
But these things are seldom as rosy as they appear to be. One digital crypto platform beckons investors on its website by offering bitcoin SIPs and attracts them with a tempting line: “If you had invested ₹400 per month in bitcoin for five years, you would get ₹154,863 by investing only ₹24,000.”
Sounds like a missed opportunity! Isn't it?
Sometimes they are sold as crypto savings accounts or fixed deposits, some virtual platforms offer return based on annual yield cent depending on the type of cryptos you keep.
These are linked to a number of cryptocurrencies such as Bitcoin, Ethereum, Tether, Ripple, Binance and Polygon.
Are they fixed deposits?
Crypto FDs are, in fact, not fixed deposits but a lending product. The investors holding digital currencies are prompted to open a fixed deposit. And these platforms take these coins and lend them to others for various purposes for anywhere between 7 to 90 days. The platform takes a small cut, and transfer the remaining interest to users.
What these digital platforms do is that they use the deposits of investors and lend them to others and lender gets an interest in return. Some of these platforms don’t allow early redemption and place stringent limits on premature withdrawals. To make it worse, these so-called “deposits” are not regulated by the RBI.
Experts point out that since cryptocurrencies are not legal tender in India, it is not sensible to buy cryptocurrencies via SIPs. Also, valuation of crypto assets differs from the conventional assets by a wide margin.
Moreover, crypto markets are not as stable as stock markets. So, the principle of averaging out cost by staggering the entry points doesn't work in case of highly volatile cryptocurrencies.
So, early investors are meant to exercise caution before being led astray. They can maintain fixed deposit accounts at a bank, an SIP at a fund management company, instead of linking them through cryptocurrencies.