Bitcoin In India: Worth Investing Or Not?

Bitcoin is one of the most sought-after cryptocurrencies globally. In India, investors are keen to invest in Bitcoin as an investment avenue, despite it not being considered legal tender in the country. The Reserve Bank of India (RBI) restricted commercial banks from facilitating Bitcoin transactions in 2018, but this order was overturned by the apex court in 2020. While it's not illegal to hold or transact in Bitcoins in India, investors are still sceptical due to the associated risks and warnings from RBI and the government. However, with the recent Bitcoin rally, there is a growing interest in this new asset class. In this paragraph, we will explore the topic of investing in Bitcoin in India, including the legal status, risks, and potential returns.

Bitcoin's volatile nature makes it a risky investment

Bitcoin is a highly volatile asset, and its price can fluctuate significantly in a short period. This volatility makes it a risky investment, as there is a chance of substantial losses if the market moves against you.

Bitcoin's price is influenced by supply and demand, investor sentiment, media hype, and government regulations. For example, in 2021, when media outlets announced Proshare's introduction of its Bitcoin Strategy ETF, Bitcoin's price skyrocketed to almost $69,000. However, when investors realised the ETF was linked to Bitcoin through futures contracts, prices dropped back down to around $50,000. Similarly, China's crackdown on cryptocurrency mining in 2021 caused a significant drop in Bitcoin's price.

The fear of missing out on big price movements often leads to panic buying or selling, further influencing demand and prices. Additionally, the actions of "Bitcoin whales"—investors with large holdings—can also impact the market. If these whales were to suddenly sell their holdings, it could cause a rapid decline in prices as other investors follow suit.

Bitcoin's limited supply of 21 million coins also contributes to its volatility. As the supply gets closer to this limit, prices are expected to climb higher, leading to increased speculation and potential price swings.

While some financial planners see value in purchasing Bitcoin as a speculative asset, it is generally recommended that it should only be a small part of your portfolio—about 1% to 2%. It is important to remember that Bitcoin is a risky bet and should not be the basis for your retirement savings or a significant portion of your investments.

If you are considering investing in Bitcoin, it is crucial to educate yourself about this asset class and the cryptocurrency market. Understand the risks involved and only invest an amount you are comfortable losing, as there is no guarantee of returns in this volatile market.

It's legal to buy Bitcoin in India, but it's not legal tender

Bitcoin is one of the most sought-after cryptocurrencies globally, and its popularity is growing in India. However, the Indian government has not recognised it as a legal tender.

In India, the government and the Reserve Bank of India (RBI) have taken a cautious approach towards cryptocurrencies like Bitcoin. While it is legal to buy and sell Bitcoin in India, it is not considered a valid currency for buying and selling goods and services. The Indian government and the RBI have expressed concerns about the impact of cryptocurrencies on the country's financial stability and monetary sovereignty. There are also worries about the potential for cryptocurrencies to be used for illegal activities and the risk of losing capital due to their volatile nature.

The RBI, which prohibited banks from dealing with cryptocurrencies in 2018, has warned that the volatility of cryptocurrencies could affect the health of banks and lead to financial instability. The Indian finance ministry is working on a regulatory regime for an official digital currency issued by the RBI and plans to prohibit private cryptocurrencies. Despite these concerns, the Supreme Court of India quashed the RBI ban on cryptocurrency trading in 2020, allowing financial institutions to facilitate crypto trading and creating a ground for several crypto market exchanges in the country.

While there is no regulation specifically governing cryptocurrencies in India as of 2024, the government has stated that if there is a legislative proposal regarding cryptocurrencies and their trading, it will be introduced in Parliament following due process. The government is also concerned about the use of terms like "coin" and "currency" in virtual currency names, which are misleading investors. As a result, there is no possibility of cryptocurrencies being declared legal tender in India.

The minimum investment in Bitcoin in India is Rs 100

Bitcoin is currently one of the most sought-after cryptocurrencies worldwide. However, India is still developing its cryptocurrency market and is slowly catching up with the rest of the world. Therefore, individuals interested in investing in Bitcoin in India should educate themselves on this asset class before investing.

The Minimum Investment in Bitcoin in India

It is important to note that while there is no minimum limit for investing in Bitcoin in India, investors can purchase small units if they do not want to buy an entire Bitcoin.

To buy Bitcoin in India, investors must follow these steps:

• Submit essential documents, including the Aadhaar Card and PAN card, and complete the KYC process.
• Place an order for the desired amount of Bitcoin on a cryptocurrency exchange.
• Transfer the payable amount from their bank accounts to the crypto exchange or use alternative payment methods such as RTGS, NEFT, debit or credit cards, or other digital payment options.
• Store the purchased Bitcoin securely in a cryptocurrency wallet provided by the exchange.

Points to Remember When Buying Bitcoin in India

Before investing in Bitcoin, individuals should consider the following:

• Gain an understanding of the global and Indian crypto capital markets and conduct comprehensive research on different websites.
• Track the movement of digital coin prices and Bitcoin's market share using online platforms and exchange platforms for daily updates.
• Bitcoin is a relatively new instrument in the Indian market and is highly volatile. It is not legalised by the RBI, so there is always a risk of losing capital.

Crypto exchanges are the simplest way to buy Bitcoin

There are two types of crypto exchanges: centralized and decentralized. Centralized crypto exchanges (CEX) are managed by one organization and make it easy to get started with crypto trading by allowing users to convert their fiat currency directly into crypto. Decentralized crypto exchanges (DEX) distribute responsibility for facilitating and verifying crypto trades. Anyone willing to join a DEX network can certify transactions, much like the way crypto blockchains work. This may help increase accountability and transparency and ensure that an exchange can keep running, regardless of the state of the company that created it.

Some popular centralized exchanges include Coinbase, Kraken, Gemini, and Binance. These platforms offer a wide range of cryptocurrencies and are available in many countries worldwide. However, they may require users to submit identifying documentation and follow Know Your Customer (KYC) rules. Decentralized exchanges, on the other hand, often allow users to remain anonymous and don't require personal information. Examples of decentralized exchanges include Bisq and BitMEX.

When choosing a crypto exchange, it's important to consider factors such as security, fees, the range of cryptocurrencies offered, and customer service. It's also crucial to ensure that the exchange is compliant with regulatory requirements, such as Know Your Customer and Anti-Money Laundering (KYC/AML) rules.

Overall, crypto exchanges provide a simple and convenient way to buy Bitcoin and other cryptocurrencies, making them a popular choice for both new and experienced investors.

You need a PAN card to buy Bitcoin in India

Investing in Bitcoin can be a lucrative opportunity, but it is also a highly volatile purchase. Before investing in Bitcoin in India, individuals should educate themselves on this asset class.

To buy Bitcoins in India, investors must submit essential documents, including the Aadhaar Card and Permanent Account Number (PAN) card. The PAN card is a crucial document for buying Bitcoin in India and must be connected to the investor's bank account. After submitting the required documents, investors must complete the KYC (Know Your Customer) process.

Once the KYC process is complete, individuals can place an order for their Bitcoin purchase on a cryptocurrency exchange. Several digital platforms, such as Coindesk, ZebPay, Coinbase, CoinDCX, CoinSwitch, Mudrex, and WazirX, offer Bitcoin trading in India. These exchanges allow investors to purchase Bitcoins at the current market price using various payment methods, including bank transfers, RTGS, NEFT, debit or credit cards, and other digital payment options.

After placing an order, investors can transfer the payable amount from their bank accounts to the crypto exchange. It is important to consider the transaction fees associated with different payment methods and choose the most cost-effective option. Once the payment is complete, investors can securely store their purchased Bitcoins in the cryptocurrency wallets provided by the exchange platform.

Frequently asked questions