Crypto gloom: Investors use dips for gains, seek clarity from govt

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In the hope of long-term gains, some brave investors are buying cryptcurrencies on dips in the market that has been under immense selling pressure in recent weeks.

After being hammered over the weekend, the top two virtual currencies, Bitcoin (BTC) and Ethereum (ETH), pared some of their losses and were trading above $20,000 and $1,000, respectively.

After making a low of $17,772 on Sunday, BTC recovered around 9 percent and was trading at $20,010 on Monday. ETH nosedived to $898 on Sunday; it was up by over 12 percent, and trading at $1,077.

The total market capitalisation of cryptocurrencies currently stands at 902.1 billion, a far cry from an all-time high of $3.1 trillion in November 2021.

After a blockbuster year for crypto trading as Indian crypto exchanges enlisted millions of buyers by the end of 2021, there has been a dip in volumes since the first week of April, after the government implemented a 30 percent tax on virtual assets.

Cryptos are now taxed on par with gains from speculative activity such as gambling, and lotteries, putting digital assets in the highest tax band.

Even so, Aliasgar Merchant, an investor based in Mumbai, believes the bear market in cryoptocurrencies is a phase that will pass soon. Yet, he has only invested in projects he thinks are absolutely worth it and will survive the bear phase.

“I have totally refrained from buying worthless tokens that have low potential. Quick money is a big scam. That said, there are a few things that are concerning me as well. The recent fall of Terra is an indicator that even good-looking projects may not survive the bear market,” he said. 

Bracing for losses 

TerraUSD was the third most popular stablecoin, with a market capitalisation of nearly $20 billion in early May. The blockchain, or digital ledger, has ceased to function and investors in the coin and related cryptocurrency LUNA  have seen billions of dollars in wealth vanish.

Merchant added that he will hold on to his existing portfolio and also take the opportunity to buy new cryptos at a discount.

“However, I’m prepared (for the fact) that my crypto portfolio will look red for the next 2 years,” he says.

Noel Saldanha, an after-sales professional at a leading original equipment manufacturer, says the recent crash in prices of most crypto tokens is unnerving and he is taking comfort in historical data that shows cryptos have bounced back smartly in the past.

“This time, the decline seems to stem from something rather more fundamental in nature. Only time will tell how the crypto space digests the crash of once highly regarded crypto tokens like Terra and whether we have bottomed out in terms of prices. On the personal front, there seems to be no other option but to hold all cryptos while being cautious about further capital infusion,” Saldanha says.

Holding on to assets 

Insiyah Kojawala, a network quality analyst at an advertising company, says that during the 2021 bull market, she saw a lot of her friends and colleagues getting attracted to cryptocurrencies and like other first-time investors, she too sought guidance from friends and online experts on which cryptos to invest in.

“Seeing the recent downturn of the market is very difficult for me. Especially when almost my entire portfolio has fallen by 80 percent. The bear market obviously worries me a lot, but I’m following the strategy of holding my assets while the bear market lasts,” she says.

“One of the reasons I am able to do so is because I have invested only 30 percent of my investment portfolio in cryptos. I do not need to liquidate any of my assets for any immediate short-term needs. However, if the trend continues and the crypto projects I have invested in cease to exist, there will be a huge blow to my financial health,” Kojawala added.

Kutbuddin Dahiwala, an advocate and a tax consultant, says while tokens like BTC, ETH, Solana (SOL), Ripple (XRP), and ATOM were at attractive valuations for investment with a five-year horizon, clarity from the government on regulations and a decrease in the taxes being currently charged is needed for new investors to make quality returns.

“What we need is clarity from the government, at least on long-term investments. It is untenable to invest in cryptos from India, however great an opportunity this may be in the long run, if the government is not supportive in terms of taxes,” he says.

“New investors seek encouragement from the government to invest in assets that have been well researched. I am holding off investment for now just because it is unaffordable to pay 30 percent taxes on our investments, even though I know there is good money to be made since my research is in place,” Dahiwala added.

‘Very Risky’  

Adil Mapari, a retailer dealing in consumer products, says cryptocurrencies more than halving in value from their all-time highs only reinforces his stand that investments in digital assets are “very risky” and not to be done unless one has money they are willing to lose.

“While I have parked 10 percent of my investments in cryptos, my portfolio is down almost 99 percent. While this may not have a huge bearing on my financial health, I would have been at much more peace if I had done my research thoroughly. There are dozens of experts we find online who advise on crypto investments. I too invested after taking the advice of the online gurus,” Mapari said.

He adds that the dip has been an eye-opener and an investor has to personally do his research without relying on external factors.

“I have used the dips to the fullest this time and am very confident that since my research is in place, I do not have to worry about losing money over the next 2 years at least,” Mapari adds.