- Investing in cryptocurrencies in India is more accessible and has a well-defined regulatory environment, but it's not a magic money machine.
Trading in cryptocurrency in India has gone from being this quirky internet thing to a full-blown financial phenomenon. Whether it’s about diversifying your investments, yearning to take a chance on a potential big pay day through digital assets, or just want in on the adrenaline rush, the discussion below will be useful to you.
What Are Cryptocurrencies?
Cryptocurrencies are digital currencies that are not controlled by any government or bank, and are secured a fancy technology called cryptography. They are minted on something called a blockchain, which are a type of tamper-proof digital ledger.
Types of Cryptocurrencies
The big names you’ve probably heard of are Bitcoin, the OG crypto that’s worth a ton, and then there’s Ethereum, which can do cool things like run smart contracts.
Popular cryptocurrencies include:
- Bitcoin (BTC): The first and most valuable cryptocurrency.
- Altcoins: These are second-tier coins and there are hundreds of them, with the top ones being Ethereum, XRP, Cardano, Solana and many more: Some like Ethereum have smart contract capabilities.
- Stablecoins: These are cryptocurrencies pegged to safe haven assets, primarily the US dollar, US treasuries and gold. Examples include USDT (tether), USDC and XRPL
- Meme coins: These are hype-inspired coins, primarily driven by internet communities who often push them through memes. Examples include Dogecoin, Shiba Inu, Pepe etc.
Each crypto asset has different use cases and risk levels, so research is crucial.
Investing in Cryptocurrencies in India
Now, let’s talk about the scene in India. The crypto landscape here has undergone substantial shifts over the years. Cryptocurrencies are not banned, but neither are exactly legal tender either. That said, the Reserve Bank of India (RBI) has been giving multiple “be careful” warnings, but trading’s still on.
Nonetheless, profits from crypto trading are taxed at a hefty 30%, and there’s also a 1% tax deducted at source on every transaction. The regulatory environment will likely keep shifting, so keep an eye on updates from the RBI, SEBI, or the Finance Ministry to stay out of trouble.
Where to Buy and Trade Cryptocurrencies in India
Before you get started with cryptocurrencies, you’ll need a crypto exchange. These are either centralised CEX) or decentralised (DEX) platforms where you can buy, sell, and store your digital coins. If you are a beginner, it is advisable to go for CEXs because they are easier to navigate. If you are in India, your options include CoinDCX, WazirX, ZebPay, CoinSwitch, Binance, Kuber etc.
When picking an exchange, you will need to prioritise security (like two-factor authentication or cold storage), the number and types of coins they support, user-friendly interface, and whether they support deposits and withdrawals in Indian rupees (INR) smoothly. In addition, they’ll almost certainly take you through a Know Your Currency (KYC) process, where you may need a PAN card, Aadhaar or passport, and a quick selfie to prove your identity. Once that’s done, link your bank account or UPI, and you’re ready to roll.
Depositing Funds Investing
- If you choose to invest in cryptocurrencies, the good news is that you do not have to have large sums of money to do it. Some exchanges allow users to get started with just 100 rupees or less.
- Secondly, you will need to Deposit some cash via UPI or bank transfer.
- Once you’re done, pick a crypto like Bitcoin or Ethereum and place your buy order.
- Once the transaction is closed, your coins show up in your exchange wallet.
Self-Custody Wallets
If you’re planning to hold a lot of crypto, you shouldn’t leave it all on the exchange. Instead, you should get yourself a secure wallet. Here, you have the option of going for either hot or cold wallets. Hot wallets, like Trust Wallet or MetaMask, are apps connected to the internet. This is convenient because you can access them from anywhere. They safer than custodial wallets held by exchanges, but riskier compared to cold wallets. Cold wallets, like a Ledger Nano or Trezor, are offline hardware devices and are way safer for long-term storage because no one can access them except you or a third party with your password.
Understand and Manage Risks
Crypto is not for the faint-hearted, and you need to understand the downside to owning them. First, their prices are notoriously volatile and can swing like crazy and when the market goes against you in a matter of minutes or hours, you might be left wondering what happened to your money.
The golden rule is to never bet more than you can afford to lose. In addition, steer clear of risky stuff like margin trading when you’re just starting out. Also, a diverse portfolio offers a better cushion. Therefore, spread your investments across multiple coins to play it safe. Finally, keep your ear alert for news and developments that can potentially disrupt the market.
Crypto Taxes in India
Taxes are another thing you can’t ignore. India put in place strict rules for crypto in 2022, with a 30% tax on any profits and that 1% tax deducted at source on every sale. In addition, you can’t offset crypto losses against other income, therefore, you need to keep detailed records of every transaction to give you an easier time when tax filing season comes.
Beware of Scams
The crypto world is like the Wild West, with multiple scams fashioned as Ponzi schemes, fake airdrops, and all manner of sketchy links. As a basic rule, never share your private keys or wallet seed phrases. Secondly, anyone promising you “guaranteed returns,” with excessive high yields is a big red flag. Stay away from such.
Consider “Hodling”
One strategy that has worked for a lot of crypto folks is “HODLing”. This involves buying crypto coins and holding onto them for years, no matter how will the market gets. A key advantage that comes with it is that you on trading fees and taxes,-if you believe in crypto’s long-term potential, it could pay off big. For instance, Bitcoin price has risen by 1,140% in the last five years.
In Conclusion
Investing in cryptocurrencies in India is more accessible and has a well-defined regulatory environment. However, you should be aware that it’s not a magic money machine. You should start small, stick to trusted platforms, keep your coins secure, and stay sharp. Generally, it’s a wild ride, but with a bit of know-how and caution, you can explore this new financial frontier without getting burned.