The year 2021 is coming to an end in a few hours from now. And whether you’ve planned a hip party to usher in 2022, or simply want to cosy up in your bed to fall asleep early, the one exercise that you must have definitely undertaken is to look back at the year gone by and ruminate on your highs and lows, celebrations and losses, alongside reflecting on your goals to set the tone for the year that’s knocking at your doorstep.
And one thing that you couldn’t have escaped your sight while you navigated through your financial health and goals in 2021 is cryptocurrencies! And how could it? The global cryptocurrency market capitalisation touched a record $1 trillion in February 2021, even briefly crossing the $3 trillion-mark in November.
Crypto was the most popular word on Reddit in 2021, used over 6.6 million times on the site. Even more, the central American republic of El Salvadore went as far as adopting bitcoin as its official legal tender! The world was going gung-ho about crypto!
But if you have spent the last year wondering whether or not you should dip your feet in the risky and volatile waters of crypto, looking back at the performance of these cryptos over the last year and the returns they’ve delivered should help you come to an informed decision.
Imagine you had Rs 50,000 to invest exclusively in cryptocurrencies, which you put in the market on January 1, 2020. To begin with, you have invested in the top 3 cryptocurrencies by market capitalisation, namely Bitcoin (Rs 15,000), Ethereum ( Rs 10,000) and Binance coin (Rs 5,000).
With the remaining of Rs 20,000, you decide to invest Rs 5,000 each in Dogecoin and Shiba Inu (because you didn’t want to miss the trend wave and feel FOMO’ed), Solana (famously called the “ethereum killer”) and Tether (adding the largest stablecoin by market cap to the mix). Here’s how your cryptocurrency investments would have yielded till December 31, 2021:
Category A: The top 3 Cryptos
| Name of crypto | Amount invested(In Rs) | Return on investment (ROI) (in per cent) | Returns earned (in Rs) | The total amount you’ve earned (In Rs) |
| Bitcoin | 15,000 | 62.77 | 9,415.5 | 24,415 |
| Ethereum | 10,000 | 398.34 | 39,834 | 49,834 |
| Binance Coin | 5,000 | 1,281.74 | 64,087 | 69,087 |
| Name of crypto | Amount invested(In Rs) | Return on investment (ROI) (in per cent) | Returns earned (in Rs) | The total amount you’ve earned (In Rs) |
| Dogecoin | 5,000 | 3,600.96 | 1,80,048 | 1,85,048 |
| Shiba Inu | 5,000 | 1,780.55 | 89,027.5 | 94,027.5 |
| Tether | 5,000 | -0.03 | -1.5 | 4,998.5 |
| Solana | 5,000 | 11,314.57 | 5,65,728.5 | 5,70,728.5 |
But, it’s hard to track the market 24x7 to follow the price track each crypto follows, given that you do neither have the time nor the expertise to understand the market intricately. That’s why your focus should not be on earning quick-bucks, but rather long-term wealth creation.
Also, don't forget the wild fluctuations that accompany the speculative and transitory nature of coins that do not have strong fundamentals backing them. You would not want your hard-earned money to be at the mercy of just a billionaire’s tweet or pure market frenzy, would you?
That is also why the relatively stronger fundamentals and use-case of Solana beat both Dogecoin and Shiba Inu, alt-coins which do not have any clear underlying use-cases.
In the cryptocurrency world, Bitcoin, Ethereum, and Binance coin, by virtue of commanding a dominant market share, are somewhat akin to stable blue-chips, which promise stability of returns. This also means they are much less prone to manipulations, rigging, and fraud- a common sighting amongst the 16,237-strong and rapidly growing universe of cryptocurrencies.
As a principal, given that crypto is a dangerous, ambiguously regulated and extremely high-risk, high-returns proposition, there are a few ground rules one must absolutely abide by
- Start small and invest only what you are willing to lose. Overnight fortunes and crashes are both well within the crypto horizon.
- Research well about altcoins i.e. coins other than Bitcoin, since they are a risky investment compared to dominant cryptos in the market like Bitcoin, Ethereum etc.
- But most importantly, And just like you balance your asset allocation between risky and stable investments in your portfolio, make sure the altcoins in your crypto portfolio acquire a significant position but do not exceed a certain threshold.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
