Cryptocurrency Investment In India: Is It Possible?

Cryptocurrency is a digital, non-physical, and decentralised currency that is secured by cryptography and operates on blockchain technology. It has been gaining popularity in India, with over 100 million investors, making it the highest holder of cryptocurrencies in the world. Investing in cryptocurrencies in India is legal, and there is no cap on the maximum investment amount. However, it is a highly speculative and volatile market, and investors are advised to exercise caution and conduct thorough research before investing.

Cryptocurrency exchanges in India

Investing in cryptocurrencies is legal in India, and there are no laws prohibiting individuals from buying or selling virtual coins. However, the lack of regulation and oversight in the cryptocurrency trade in India is a significant risk, as the government has not taken a concrete stand on the matter. This lack of regulation can be traced back to a 2018 circular by the Reserve Bank of India (RBI) that attempted to impose a blanket ban on such trade. While the Supreme Court set aside the RBI circular in March 2020, banks remained hesitant to deal with cryptocurrencies until recently. Another issue is the possibility of a future ban on decentralised virtual coins, which could result in heavy losses for investors.

Despite these risks, the popularity of cryptocurrencies in India has been growing rapidly, with Indian cryptocurrency exchanges reporting an increase in users. Young investors, in particular, are attracted to the prospects of strong returns offered by cryptocurrencies. To trade in cryptocurrencies, an investor must open a crypto trading account on a cryptocurrency exchange, such as Coinbase. These exchanges act as brokers, facilitating transactions between buyers and sellers and charging transaction fees and commissions. It is important for investors to understand that cryptocurrency is highly speculative and volatile, and they must be prepared for potential dramatic swings in value.

When choosing a cryptocurrency exchange in India, there are several factors to consider. Firstly, it is essential to ensure that the exchange is secure and compliant with regulations. Secondly, look for an exchange that offers a user-friendly platform with a simple and intuitive interface, making it easy to navigate and execute trades. Thirdly, consider the range of cryptocurrencies available on the exchange, as different exchanges may offer different options. For example, some exchanges may focus on popular coins like Bitcoin and Ethereum, while others may provide a wider variety of altcoins.

Additionally, it is crucial to assess the liquidity of the exchange, which refers to the ease with which cryptocurrencies can be bought and sold without impacting the market price. Higher liquidity means that you can quickly enter or exit a position without significant price slippage. Furthermore, consider the fees charged by the exchange, as they can vary between platforms. Some exchanges may offer lower trading fees, while others may charge higher fees for certain features or services. Finally, look for exchanges that provide good customer support, as you may need assistance at any time, especially if you are new to cryptocurrency trading.

How to buy cryptocurrency

Choose a Crypto Exchange or Broker

First, you need to select a crypto exchange or a broker. A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. Exchanges often have relatively low fees but can be intimidating for new investors due to their complex interfaces. Examples of well-known cryptocurrency exchanges include CoinDCX, Zebpay, Mudrex, and WazirX. On the other hand, a cryptocurrency broker simplifies the process of purchasing crypto and offers user-friendly interfaces. However, brokers may restrict you from moving your cryptocurrency holdings off their platform.

Create and Verify Your Account

Once you have chosen a platform, you can sign up and create an account. Depending on the platform and the amount you plan to buy, you may need to verify your identity by submitting documents such as your Aadhaar card or PAN card. This step is essential to prevent fraud and meet regulatory requirements.

Deposit Funds

To buy cryptocurrency, you need to deposit money into your account. You can typically do this by linking your bank account or using a debit card. Some platforms may offer additional payment methods, such as UPI or net banking.

Place Your Cryptocurrency Order

With funds in your account, you can now place your first cryptocurrency order. There are hundreds of cryptocurrencies to choose from, ranging from well-known names like Bitcoin and Ethereum to more obscure options. When placing your order, you will need to enter the ticker symbol of the cryptocurrency you wish to purchase, such as "BTC" for Bitcoin, and specify the amount you want to buy.

Select a Storage Method

The Reserve Bank of India does not back cryptocurrency exchanges, so it is crucial to choose a secure storage method for your cryptocurrencies. You can leave your crypto on the exchange in a wallet attached to the platform, or you can transfer it to a separate hot or cold wallet for added security. Hot wallets are connected to the internet and offer convenience, but they are also at a higher risk of theft. Cold wallets, on the other hand, are not connected to the internet and are considered the most secure option for holding cryptocurrency.

Additional Considerations

When choosing a crypto exchange, it is important to consider factors such as security, investment/trading options, liquidity, fees, and customer support. Additionally, be aware of the risks associated with cryptocurrency, as it is a highly volatile and unregulated market in India. Ensure you understand the technical aspects and practice risk management.

How to store cryptocurrency

Cryptocurrency storage is a crucial aspect of owning crypto, as it lacks the same protections as money in a bank account or investments made through a broker. As the owner, storing your cryptocurrency safely is your responsibility. Here are some ways to store your cryptocurrency:

Custodial Wallets

A custodial wallet is a default option for crypto storage, where a third party, such as a crypto exchange, stores your cryptocurrency. This can be done through cold (offline) storage, hot (online) storage, or a combination of both. While this option requires minimal work from the user and provides easy access to crypto for trading, it does come with security risks. Your crypto is only as secure as the exchange's security measures, and there is a chance of getting locked out of your account.

Cold Wallets

A cold wallet is an offline crypto wallet, which is considered the most secure option for storing cryptocurrency. There are different types of cold wallets, including hardware wallets and paper wallets. Hardware wallets are small devices that connect to your computer and store cryptocurrency. They connect to the internet only when sending or receiving crypto, keeping your funds offline and safe from hackers. Paper wallets, on the other hand, are physical printouts of public and private keys, usually in the form of QR codes or strings of characters. While paper wallets are highly secure and practically free, they are less user-friendly than hardware wallets.

Hot Wallets

Hot wallets are applications that store cryptocurrencies online. They are typically available as desktop or mobile apps, or as web-based wallets. Hot wallets give you control over your crypto and are easy to use for quick transactions. However, they carry the risk of being hacked, making them unsuitable for storing significant crypto funds.

Desktop and Mobile Wallets

Desktop wallets are programs that reside on your computer, while mobile wallets are hosted on mobile devices. These options are generally not recommended due to security concerns.

Commercial Non-Custodial Cold Wallets

Commercial non-custodial cold wallets, such as the Ledger Nano X or Trezor Model T, are USB-like devices that connect to your device. They are considered safer than storing your keys in a wallet on your connected device. These wallets often come with software that allows you to view and use your holdings without entering your private keys. However, they are vulnerable to hacks if connected to a device.

Alternative Non-Custodial Cold Wallets

You can also use USB drives or simply write down your keys on paper and store them in a safe. While these methods are secure, they come with their own risks, such as the possibility of losing the USB drive or the ink bleeding or paper deteriorating over time.

Regardless of the storage method you choose, it is essential to back up your crypto wallet regularly and keep your software up to date to protect your cryptocurrency from theft or computer failure. Additionally, never share your private keys or recovery phrases with anyone and store them in a secure location.

Cryptocurrency safety and risks

Cryptocurrency is a non-physical, digital, and decentralised currency that is issued by private systems and remains outside of government control. It is a peer-to-peer system that enables anyone to send and receive payments. Cryptocurrencies use blockchain technology, a decentralised system spread across many computers that manages and records transactions.

While blockchain technology provides security, there are still many risks associated with cryptocurrencies.

Regulatory and Legal Risks

In India, the biggest risk involved in cryptocurrency trading is the lack of regulation and oversight. The government has yet to take a concrete stand on cryptocurrency, which has discouraged many keen investors. There is also the possibility of a ban, which could result in heavy losses for investors.

Security Risks

Cryptocurrency exchanges and systems are frequent targets of attacks by hackers, terrorist groups, and nation-states. The lack of a governing body means there are no requirements for security audits, assessments, or controls. As such, cryptocurrency accounts and wallets are vulnerable to hacking, malware attacks, and scams.

Additionally, cryptocurrency payments do not offer the same legal protections as credit or debit cards. If something goes wrong, there is usually no third party to appeal to for a refund. Transactions are typically recorded on a public ledger, and some information about the sender and recipient becomes public.

Volatility and Investment Risk

The value of a cryptocurrency is not tied to promises by a government or central bank, and it can change constantly and dramatically. As an emerging asset class, it has not gained widespread acceptance, and there are no guarantees of making money off investments. Analysts have stated that cryptocurrencies are risky assets, and investors need to have a big risk appetite to gain from crypto trading.

Other Considerations

• Research and Knowledge: The cryptocurrency market is prone to volatility and scams. It is important to research the different types of cryptocurrencies, blockchains, software, and common scams before investing.
• Secure Wallets: Storing crypto in a secure wallet can provide some protection from theft. Hardware wallets, such as USB devices, are considered one of the best ways to protect your crypto as they have no internet connection, making them difficult to infect with malware.
• Two-Factor Authentication: Enabling two-factor authentication (2FA) for withdrawals adds an extra layer of security to your account.
• Regular Monitoring: Regularly checking your crypto accounts can help you identify any suspicious transactions or bots monitoring your wallet.
• Avoiding Public Wi-Fi: Avoid using public Wi-Fi for crypto transactions as people nearby may intercept your internet traffic and determine if you are visiting crypto sites.
• Strong Passwords: Use long passwords with a mix of uppercase and lowercase letters, numbers, and special characters. Avoid using the same password on multiple platforms, and change your passwords periodically.

In conclusion, while cryptocurrency investing in India offers potential opportunities, it is important to be aware of the risks and take precautions to protect your investments.

Cryptocurrency regulation in India

India has become the highest holder of cryptocurrencies in the world, with over 100 million investors. Cryptocurrencies are defined as the digital version of money that is created and held as virtual coins or tokens. Despite the growing popularity of cryptocurrencies in India, a large number of investors hesitate to put their money into it due to a lack of regulation. In 2018, the Reserve Bank of India (RBI) attempted to impose a blanket ban on cryptocurrency trade. However, the Supreme Court set aside the ban in March 2020, and the cryptocurrency market in India skyrocketed.

The Indian government has not been able to take a concrete stand on cryptocurrencies, which has resulted in a lack of regulatory protection. This discourages many keen investors from investing in cryptocurrencies. Another issue is the possibility of a ban. Although the government has softened its stance recently, it is still unclear whether it will opt for complete prohibition or regulation. In the case of a ban, investors in India could face heavy losses.

Cryptocurrencies are considered risky assets due to their volatile nature. Analysts have stated that wild price swings are common in the virtual coin trading space, and investors need to have a big risk appetite to gain from crypto trading. However, it should be noted that cryptocurrencies are far more resilient than they appear, having survived two major global recessions. Additionally, cryptocurrencies act as a hedge against fiat currencies, equities, and inflation, making them an ideal alternative to gold.

While investing in cryptocurrencies carries risks, there are also potential benefits. Cryptocurrencies are enabled by blockchain technology, which provides security and transparency to transactions. Blockchain technology establishes an equal consensus among untrustworthy parties, making it challenging for hackers to tamper with transactions.

In conclusion, while cryptocurrency regulation in India remains uncertain, investors can take steps to mitigate risks by conducting thorough research, understanding the volatile nature of the market, and investing only what they can afford to lose. It is also essential to stay updated with the latest developments in the regulatory landscape surrounding cryptocurrencies in India.

Frequently asked questions