The Ultimate Guide To Bitcoin Investment In India

Bitcoin is a cryptocurrency, a digital currency with no physical form that is traded purely over the internet. It was introduced in 2009 by an anonymous developer known as Satoshi Nakamoto. While it is not considered legal tender in many countries, including India, it is also not illegal to hold or transact in Bitcoins in the country.

If you want to invest in Bitcoin in India, you can do so through various online Bitcoin exchanges such as CoinDCX, ZebPay, or Coinbase. Before investing, you will need to complete a KYC (know your customer) verification and provide documents such as a PAN card, address proof, and photographs. You can then transfer funds from your bank account to the crypto exchange and purchase Bitcoins. It is important to note that Bitcoin is a highly volatile investment, and there are associated risks to consider.

Payment methods for buying Bitcoin

There are several payment methods for buying Bitcoin in India. These include:

• Bank transfers
• Net banking
• Mobikwik
• Cryptocurrency wallets
• Unified Payments Interface (UPI)
• Debit or credit cards
• RTGS
• NEFT
• Google Pay
• Apple Pay

Different platforms offer different payment methods, and some may charge higher transaction fees for specific funding options. For example, CoinDCX doesn't charge a fee if you use UPI and bank transfers, but it does charge 0.5% on net banking. On the other hand, WazirX requires you to top up your Mobikwik wallet using UPI or bank transfer before transferring funds, and it doesn't support credit cards for wallet transfers.

When deciding on a payment method, it's important to consider the associated fees as they can reduce the amount of money you have to invest. Electronic transfers from a bank account tend to be a more cost-effective option.

Bitcoin's legal status in India

India's stance on cryptocurrencies has been ambiguous, with no clear regulations or guidelines for settling disputes. However, it is important to note that investing in and trading Bitcoin in India is not illegal. The government has not passed any official clarification on the legality of cryptocurrencies, but there is no specific ban on them in the country.

The Reserve Bank of India (RBI) and the Ministry of Finance have not recognised cryptocurrencies as legal tender in India. This means that while individuals can trade, hold, buy, and invest in crypto assets, they cannot be used for everyday purchases or transactions within the country.

The Indian government has implemented a 30% tax on income from the transfer of digital assets and a 1% tax deduction at source (TDS) for transactions exceeding a specific limit. This "tax first, regulate later" approach adds a layer of complexity to the regulatory environment surrounding cryptocurrencies in India.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, was introduced in the Lok Sabha, seeking to create a framework for the Reserve Bank of India (RBI) to issue an official digital currency. The bill also aims to prohibit all other private cryptocurrencies, with certain exceptions, to boost the underlying technology of cryptocurrencies. However, the bill's fate remains uncertain, adding to the regulatory ambiguity in the country.

In summary, while Bitcoin and other cryptocurrencies are not illegal in India, the regulatory environment is fluid and complex. Individuals can trade and invest in cryptocurrencies, but they are not recognised as legal tender, and the government has implemented taxes on crypto-related income. The proposed crypto bill, if passed, could further impact the future of cryptocurrencies in India, with a potential ban on private cryptocurrencies.

The minimum investment required for Bitcoins

There is no minimum investment amount required to buy Bitcoin in India. However, the minimum amount to get started with investing in Bitcoin can vary between different crypto exchanges. For example, CoinSwitch allows users to start investing in Bitcoin with as little as 100 INR. Other exchanges, such as CoinDCX, do not charge a fee for investing using UPI and bank transfers, but they do charge 0.5% on net banking.

It is important to note that while Bitcoin has experienced tremendous growth, it is also subject to extreme volatility. Therefore, experts recommend investing only a small percentage of your money in Bitcoin.

How to store Bitcoin

When storing Bitcoin, it's important to keep in mind that no storage method is 100% secure. There are two main categories of storage: custodial and non-custodial. Custodial wallets involve a third party, such as an exchange, that manages the private keys, while non-custodial wallets give users full ownership of the keys. There are also hot and cold wallets. Hot wallets are connected to the internet, while cold wallets are offline.

Hardware Wallets

Hardware wallets are a type of cold wallet that allows users to hold their private keys offline. These wallets can be connected to the internet to make transactions. They are considered one of the safest options for storing Bitcoin, as they are not accessible to hackers when offline. Examples of hardware wallets include Ledger, Trezor, and Coldcard.

Mobile Wallets

Mobile wallets are hot wallets that are held on a user's smartphone. These are usually self-custodial, meaning the user has full ownership of their private keys. While mobile wallets are convenient for sending or paying with crypto, they are less secure than cold wallets and are not recommended for storing large balances.

Desktop Wallets

Desktop wallets are programs that reside on a user's computer. They are not considered the safest storage method as they are connected to the internet and are more susceptible to hacks.

Web-based Wallets

Web-based wallets are hosted by a web service and are another form of hot wallet. They are not very secure as they allow a third party to store your keys, making them vulnerable to hacks.

Paper Wallets

Paper wallets were one of the earliest forms of cold storage for Bitcoin. They involve printing out a private and public key and then sending funds to the public key. Once funds are sent, the paper wallet is taken offline. However, this method is not commonly used anymore due to the high risk of user error or wallet damage.

When choosing a storage method, it's important to consider factors such as the amount of crypto you have, how often you will be spending or sending crypto, and your level of technical expertise. For those with large amounts of crypto, a combination of hot and cold wallets may be ideal, with the majority of funds stored in cold storage and a small balance kept in a hot wallet for transactions. Additionally, always remember to back up your wallet and keep your software up to date to minimize the risk of losing your crypto.

Things to know about Bitcoin before investing

Volatility

Bitcoin is a highly volatile investment. Its value can fluctuate wildly in a short period, as it is based purely on speculation. For instance, in the first weekend of 2021, it rose by 20% and then fell by 20% the following Sunday. Its value is not tied to the performance of a company, unlike stocks, and it is not regulated by a central authority like a bank or government. This means there is no pattern to its rise and fall, and it is challenging to calculate returns.

Risk of Loss

Due to its volatility, investing in Bitcoin is risky. It has experienced immense highs and devastating lows. For example, after hitting an almost $20,000 high in 2017, its value plummeted, and until 2020, it rose to no more than about half of that amount. In 2022, two cryptocurrencies (Luna and Terra) collapsed, causing the crypto market to lose about $2 trillion in value.

Regulatory Concerns

Some countries have banned Bitcoin, while others are looking to regulate it. The lack of consistent regulation across countries and the anonymous nature of transactions make Bitcoin attractive to criminals. Additionally, there is a risk of fraud and theft, as demonstrated by the collapse of the FTX platform in 2022.

Tax Implications

In some countries, such as the US, profits made from buying and selling Bitcoin are taxed as capital gains. It is important to understand the tax implications in your country before investing.

Storage and Security

It is important to securely store your Bitcoin in a crypto wallet to protect it from theft or loss. There are two types of wallets: cold wallets, which store private keys offline, and hot wallets, which work with internet connectivity. Cold wallets are generally considered more secure, but you must not lose your private key, as this may result in permanently losing access to your coins.

Limited Acceptance

While Bitcoin's acceptance as a payment method is growing, it is not yet widely accepted as a unit of exchange. Most businesses still rely on traditional payment methods, and it is doubtful that a cryptocurrency will become the new world currency due to governments' desire to control monetary policy.

Frequently asked questions