Corner OfficeExpert Opinion

Why Is It Time To Include Crypto In Your Portfolio?


By: Sumit Gupta

Earlier this year, the Indian crypto community had more reasons to rejoice as the Supreme Court of India ruled against a decision imposed by the country’s central bank nearly two years ago that stifled crypto trading in Asia’s third-largest economy. The apex judicial body ruled in favour of crypto currency exchanges lifting the banking ban imposed by RBI in April 2018 banning domestic financial institutions from providing banking services to crypto exchanges.

Interestingly, the ban did little to dampen investor interest and despite the veto, the Indian crypto community found a way to continue buying, selling, and trading cryptocurrencies. The lifting of the banking ban proved to be a catalyst and exchanges in India witnessed transaction volumes double since March. 

A bird’s eye, however, will tell you that maybe there is more to this decision. A three-judge bench of the court in its ruling stated the ban must be validated in view of the proportionality to the risk being addressed. There was, in fact very little evidence to suggest that crypto currencies posed a threat to the Indian banking system, they observed. Now while the lifting of the banking ban unleashed pent-up demand for cryptocurrency, it has also helped the industry in taking a big leap in building trust among its stakeholders.

When it comes to drawing out your investment blueprint, it is important to ensure the fundamentals are taken care of and diversification is a key investing fundamental to reduce your overall risk-adjusted return. In the current wake of the ongoing pandemic lockdown, with businesses hurt, rising volatility of equity markets, extended periods of very low interest rates, and a well-diversified portfolio is what earns, to stand the test of time. Secondly, the pandemic has also brought about a huge shift in the way people perceive assets, investments and money matters. In the sense that there is more maturity and awareness among investor audiences towards newer asset classes which in turn, is building more acceptability for them.

Thirdly and more importantly, we circle back to our first fundamental which has imbibed a sincere realization among investors that even while eyeing sufficient diversification, one also needs to offer one’s portfolio enough exposure to assets that are low-correlated with traditional instruments like the stock market thereby reducing the potential negative impact of market shocks.

Factoring in the above, the industry is now taking a serious note of an all-new set of assets which is also being termed as the ‘alternative asset classes. They typically constitute assets that are less traditional and are a more unexpected investment option such as — commodities, real estate, collectibles, and foreign currency among others. Cryptocurrency has been clearly leading the pack here in terms of popularity especially after the lift of the banking ban. 

Additionally another reason for the growing popularity of cryptocurrencies is the growing awareness about the asset class. Increased awareness of its functioning and importance and greater trust among the investors is further building on in favor of this asset class. One of the most powerful aspects of digital currencies as an investment is their sheer volatility because if harnessed properly, it could lead to substantial gains which yet again makes cryptocurrency a very attractive investment avenue.

Owing to its decentralized nature, investing in cryptocurrencies would mean that your money is only yours and stays the same forever. You do not rely on financial institutions for holding or transferring it and there is no need to pay exorbitant fees. Cryptocurrency offers both users and investors the ability to convert funds into digital currency and hold them securely, without having to rely on the banking system. It thus represents a medium of exchange that only grows in value with enhanced usage whilst remaining immune to devaluations and other complexities involved with a centralized system.

Cryptocurrency is no longer a high risk speculative asset. The demand for it is increasing and will continue. Cryptocurrencies such as Bitcoin have a fixed supply, those increases in demand will also mean an increase in price, benefiting those who invested in cryptocurrencies early on. Many investors presume a fair mix of stocks and bonds offers them a diversified portfolio, but that is just not the case. Investors need a wide range of assets, across multiple asset classes, before they claim to own a truly diversified portfolio. Gold and silver have traditionally been the investors’ darling especially while diversifying one’s portfolio and thanks to the growing awareness and trust, cryptocurrencies are now being viewed as the new digital gold, playing the same role of mitigating the risks of unanticipated market jolts.

The global economy is inevitably moving towards a digital ecosystem. From investment to money transfer, everything is going paperless. The newest and most promising addition to the digital payment sector is cryptocurrency as they are uniquely adaptable and offer numerous advantages over cash and payment cards.

Adding crypto to your portfolio will only enhance your return while reducing the overall portfolio risk, however it is also equally important to research and understand the underlying value of cryptocurrencies and what potential they hold before one actually starts investing. Cryptocurrencies have been attracting numerous investors lately and will continue to do so as new players emerge in the market.

(The author is Cofounder at CoinDCX and the views expressed in this article are his own)

Leave a Response