Crypto

Should you use cryptocurrency SIP? Systematic investment plan Bitcoin, Ethereum …

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Investing in cryptocurrencies is a high risk activity. Several experts would recommend that you invest or trade cryptocurrencies with money that you will not regret losing. Not only in terms of volatility, but also in terms of regulation, there is not much clarity. In India, the RBI has warned investors not to have cryptocurrencies. However, people continue to invest and indeed the crypto community in India is optimistic about the future.

Even after considering all the risks involved, if a person decides to invest in cryptocurrencies, there are a number of ways that they can do so. One of them is SIP, which is currently offered by some exchanges in India. A person can also SIP independently by purchasing cryptocurrencies for a fixed daily or monthly amount and storing them in their own preferred wallet or hardware wallet. However, a question comes to mind, whether one should SIP on cryptocurrencies or not?

Many financial experts believe that after taking into account all the risks and volatility, SIP can be a primary avenue for generating wealth through cryptocurrencies for new investors.

“If you are looking to invest in cryptocurrencies, SIP can be a preferred route as you spread out your investments and average your purchase costs over time. Many platforms allow you to start SIP on cryptocurrencies with only Rs 100-Rs 500 per deposit. Also, many investors opt for the daily SIP instead of the weekly or monthly option, as the price of cryptocurrencies can fluctuate sharply in a month. You may want to consider investing in cryptocurrencies through SIP if you are a first time investor looking to invest small amounts. However, platforms can offer the SIP feature only for major cryptocurrencies, ”Archit Gupta, founder and CEO of Clear told FE Online.

Gupta, however, warned: “Cryptocurrencies are not legal tender in India. There are significant uncertainties surrounding cryptocurrencies, as the RBI has repeatedly warned investors not to hold onto them. Furthermore, cryptocurrencies are very volatile, with drastic price fluctuations within a few days. You must be very careful before investing your savings in cryptocurrencies.

Effective strategy?

Dr Vinay Asthana, Associate Professor at the Alliance School of Business, said: “The main advantage of a systematic investment plan (SIP) is that the problem of market timing is no longer relevant. This makes SIP an effective strategy in the face of market volatility. Also, if markets are efficient, market timing is likely to be a difficult and often futile exercise.

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SIP makes sense for long-term investors in traditional assets like stocks and mutual funds. When it comes to cryptocurrencies, Dr. Asthana said that crypto assets are several times more volatile than traditional asset classes. This is a strong argument in favor of SIP for crypto assets.

However, Dr. Asthana pointed out several factors that weaken the case for SIP in crypto:

Although the evidence is mixed, cryptocurrency markets are not as efficient as equity markets. Over the course of their short history, crypto assets have generated the highest returns of any asset class. But is it sustainable? It is an issue that has polarized the world. For some, it is a revolution comparable to the Internet revolution; for others, it is just a bubble. While the technology is unstoppable, the investment implications are far from clear. The investment implications are further complicated by the fact that the valuation of crypto assets differs from traditional assets in fundamental ways. risk factor.

“Given these facts, SIP on cryptoassets appears to be a solid strategy, but it should be adopted on a limited basis as several fundamental cryptoassets-related issues remain unsolved,” said Dr. Asthana.

Control impulsive investments

Cryptocurrencies are one of the most volatile instruments available for investing. Investors are often driven by their impulses. However, it can be dangerous. SIP can help control this impulsive investment.

“Due to the large fluctuations in their prices, it becomes crucial to strategize the entry and exit points of these investments. In this context, an investment technique such as SIP that reduces the investor’s exposure to the risk of market volatility is very useful. SIP will also help avoid impulsive investments in cryptocurrencies. In addition to SIP, other risk mitigation strategies that are becoming popular for investing in cryptocurrencies include investing in a basket of cryptocurrencies or opting for index funds, ”said Professor Purushottam Anand, assistant professor at IFIM Law School.

“There are also index funds that are only exposed to the top 10 or 20 cryptocurrencies. However, since most of these investment products / platforms are not regulated in India, investors should carefully analyze and research such programs before investing. It can also be helpful to consult a financial advisor before investing, ”added Professor Anand.

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