Should India invest in Bitcoin? What are the 3 things you should be aware of before investing in Bitcoin?
By Roshan Aslam
As the global financial landscape continues to evolve and the world witnesses the widespread adoption of cryptocurrencies, digital currencies like Bitcoin are gaining increasing attention and significance. India, with its rapidly growing economy and tech-savvy population, stands at a crossroads where embracing the potential of Bitcoin could yield significant benefits. Should India embrace this digital revolution and invest in Bitcoin? Let us try to dig a little deeper as to why India should consider investing in Bitcoin and how it can play a pivotal role in shaping the country’s financial future.
Today, India has made commendable strides in enhancing financial inclusion, but a significant portion of its population still remains unbanked or underbanked. According to a World Bank report, nearly 190 million Indians lack access to formal banking services. One of the primary advantages of Bitcoin is its ability to provide financial inclusion to the unbanked and underbanked populations in India. Bitcoin, being decentralized and accessible to anyone with an internet connection, can be a powerful tool for financial inclusion and has the potential to bring financial services to these marginalized communities.
In recent years, India has faced challenges related to inflation and currency depreciation, impacting the purchasing power of its citizens and eroding the value of the national currency, the Indian Rupee (INR). Bitcoin, with its limited supply capped at 21 million coins, acts as a deflationary asset for all investors. This scarcity makes Bitcoin an attractive option for individuals and institutional investors looking to hedge against inflation and protect their wealth over the long term As India continues to grapple with economic uncertainties, investing in Bitcoin can provide a diversification strategy to safeguard wealth across investment portfolios.
As the Indian economy grows from strength to strength, it has become a major recipient of international remittances, with millions of its citizens working abroad and sending money back home. Bitcoin’s decentralized nature and low transaction fees make it an efficient and cost-effective solution for cross-border transactions. By embracing Bitcoin, India could streamline the remittance process, reducing fees and processing times associated with traditional banking channels. This would benefit both the senders and recipients of remittances, enhancing financial efficiency and inclusivity.
Investing in Bitcoin and blockchain technology can stimulate job creation and foster innovation within India’s tech sector in areas such as software development, cybersecurity, legal and regulatory compliance, and more. The cryptocurrency industry is not limited to trading and investment; it also involves the development of blockchain-based applications, smart contracts, and decentralized finance (DeFi) platforms. By actively participating in this growing sector, India can position itself as a hub for technological innovation, attracting talent and investment and contribute to economic growth by fostering innovation and entrepreneurship.
However, a well-regulated environment is needed to provide investor protection, prevent illicit activities, and foster confidence in the market. It is high time that India establishes a regulatory framework supporting the responsible use of cryptocurrencies while protecting the interests of its citizens. Providing clear and sensible regulations for the use of Bitcoin can remove uncertainty and encourage responsible participation attracting institutional investors.
Including Bitcoin, often referred to as “digital gold” in investment portfolios can provide diversification benefits and reduce overall portfolio risk as it is uncorrelated with traditional financial markets behaviour. Given that institutional investors globally allocate a portion of their funds to cryptocurrencies, India, too, could benefit from diversifying its investment strategies to include digital assets like Bitcoin. For almost a decade now, India has been actively pushing its Digital India initiative to transform the country into a digitally empowered society. Bitcoin aligns with this vision, offering a decentralized and digital form of currency. Integrating Bitcoin into the Digital India framework can accelerate the transition to a cashless economy, reduce transaction costs, and enhance overall financial efficiency.
While the reasons for the adoption of Bitcoin by India are clear, before investors plunge headlong into investing a significant chunk of money into cryptocurrencies, there are a few things investors need to know and be wary about.
Volatility and Risk:
Cryptocurrencies like Bitcoin and many others are known for their extreme price volatility. Unexpected and significant fluctuations may take place very quickly over short periods which could lead to substantial highs or lows. Factors such as market sentiment, regulatory developments, technological advancements, and macroeconomic trends can contribute to price swings. Hence, it is crucial to only invest what you can afford to lose and to have a risk management strategy in place.
Security and Storage:
When looking to or investing in investors should use secure and reputable cryptocurrency exchanges, enable two-factor authentication, and implement other security best practices to protect their holdings from hacking and fraud. Cryptocurrencies are typically stored in digital wallets, and the security of these wallets is crucial. Understand the different types of wallets available for storing cryptocurrencies, such as hardware wallets, software wallets, and paper wallets. Select your wallet based on your preferences and the amount of security needed. Consider using hardware wallets for long-term storage.
Research and Due Diligence:
Before investing, it’s essential to have a solid understanding of the underlying blockchain technology and the specific features of the cryptocurrency you are interested in. Different cryptocurrencies serve different purposes, and understanding the technology can help investors make informed decisions. Before investing, it is important to research the background and credentials of the development team behind the cryptocurrency. Evaluate the project’s whitepaper, which outlines its purpose, technology, and future plans and assess the viability of the project and its potential for long-term success.
While the Bitcoin or cryptocurrency market offers opportunities, it also poses unique challenges. Diversification, careful risk management, and ongoing education are key components of a successful approach to cryptocurrency investing. Consulting with financial professionals and staying informed about market developments can also be beneficial. By adopting a proactive stance, investors in Bitcoin can ensure a resilient and future-ready financial ecosystem. Hence, the time is now ripe for India and investors to seize the opportunities presented by Bitcoin and lay the groundwork for a prosperous and technologically advanced future.
(The author is Roshan Aslam, Co-founder & CEO of GoSats, and the views expressed in this article are his own)
