My crypto-curious friends

What beginner investors need to know about crypto

Dear Friend,

Hope you had a very happy Deepavali. Today I wanted to talk about the recent surge in the number of people I know who are interested (& invested) in cryptocurrency. I’ve friends, family, family friends, across ages, with apps in their pockets, talking about Bitcoin and Ethereum with the same easy confidence they’d otherwise reserve for Virat Kohli or China border tensions.

But once you start asking them about how it works, if they know what it represents, the risk that it brings and what research they’d put in before investing, all the initial crackles of enthusiasm quickly turn into fiery defensiveness:

• “All my friends are investing in crypto and they said it was safe”

• “If it wasn’t safe or legal, why would there be ads for it on TV?”, and my personal favourite

• “Elon Musk invests in crypto, and surely he knows better.”

What You Need To Know About Investing In Crypto

I’ll start by saying that I know my family and friends aren’t alone in their enthusiasm for cryptocurrency. India has the highest number of crypto owners in the world - a cool 100 million. The US comes a distant second with 27 million. Embracing cryptocurrency isn’t necessarily a bad thing, but being totally okay with putting one’s hard-earned money in crypto without understanding its risks is terrifying.

So I thought I’d share with you, what I tell them. Here are five things you need to know about investing in crypto in an Indian context, today.

1. The advertising is downright dangerous

   On most days, the crypto exchange ads that have saturated our feeds, newspapers and tv/streaming services remind me of the IIPM ads of the 2000s. Dare to think beyond Mutual Funds! It’s as if the simple act of putting out ads with bombastic copy (The future! returns guaranteed!) could automatically result in the bombastic copy becoming fact. There is no disclosure of the risks involved in crypto, its legality or that even the most “stable” of coins could swing wildly based on cough Elon Musk’s tweets.

2. Crypto is barely legal

   I’ll never tire of saying this. Crypto’s legality in India is very much in the grey area. Although the Supreme Court of India overturned RBI’s 2018 ban on cryptocurrency as “unconstitutional”, the Central Bank of India continues to be at loggerheads with Crypto Exchanges. As a result, there is a lot of passive-aggressive behaviour that banks indulge in, like making payments and withdrawals difficult or inconvenient for investors.

3. Decentralization is a double-edged sword

   The entire premise of crypto is decentralization and getting rid of stuffy institutions that make up the rules. But decentralization is a double-edged sword. As the technology & knowledge gaps between the crypto-savvy and the crypto-newbies widen, a number of scams have come to light. This isn’t just an India problem though. It’s happening all across the world, even to experienced investors across the globe. And they can’t do anything about it because of how blockchain is designed. There is no one you can dispute the transaction with or even just write angry letters to. If it’s gone, it’s gone.

4. There’s a crypto bill in the works

   The Economic Times today published that India would take “the middle path” with cryptocurrencies as it readies the legislation that will govern crypto in the winter session of the parliament. The key takeaway seems to be that India would want to take a “middle path”. What does that mean? No one really knows, given India’s previously aggressive stance (Holding Crypto? 25 crores fine! 10 years in prison!), the RBI’s concerns on treating crypto as a “currency” and SEBI banning investment advisors from advising on crypto. So it’s worth waiting until the regulation actually comes out. Insiders have stated that India will adopt blockchain technology and may even come up with a digital currency of their own. But there’s really no telling what could happen to independent currencies that currently lie outside their control.

5. Governments will always need control

   In a reasonable world, 100 million owners and Rs. 6 lakh crore in digital assets would be enough reason for a government to integrate the crypto ecosystem with the mainstream economy. Enough reason to bring in both advertising and trading regulations that make crypto investments safer for smaller investors.

   But here’s the thing about governments - they need control. And cryptocurrencies were born out of the need to reject control. Two months ago, China, one of the largest crypto economies in the world banned cryptocurrency and declared trading and ownership of cryptocurrency to be a crime.

   Will India be different? Maybe. Maybe not.

   Let us never forget that five years ago - to the date - the government and leadership decided to demonetize Rs. 15 lakh crores worth of banknotes overnight. That’s more than double the crypto assets that are held today. One would hope that the crypto bill would be positive and that we can all co-exist, but it would be more prudent to be pessimistic.

6. Bonus - there’s no such thing as easy/assured returns

   None of the above is to indicate that crypto isn’t worth investing in. I’ve invested in crypto and I truly believe that crypto and web3.0 are incredibly exciting and ever-evolving spaces. But I also know that the path to future glory is often riddled with present potholes. And so, I will invest only an amount that I am comfortable with losing altogether. If shit hits the proverbial fan, one should be able to walk out with lessons, not losses.

   To trust crypto as a reliable way to profit would be to self-sabotage. Forget crypto, if anyone tells you that you can make double to triple digit returns safely, stress-free, and in no time, they’re either lying or being paid a lot of money to say it. There’s no such thing as a free lunch - in the universe or in the metaverse.

I hope you found this useful. If you’ve got an aunt/uncle/cousin/grandma/family friend looking to invest in Crypto, do forward this email to them.