“As far back as I remember, I always wanted to be a Gangster” – The opening scene of the movie Goodfellas completely sums up the glorious journey bitcoin has had over the past decade. It started out as a wimp, then suddenly got introduced to the world of finance as it took a tectonic turn and got recognized by everybody on the streets, only to go back to its original form.
When it was started in 2009 by Satoshi Nakamoto, a pseudonymous engineer who arguably solved the worldwide problem of transactions or currency being controlled and operated from a centralized platform, it started at $0, and the cryptocurrency market is a billion-dollar industry.
Yeah, a TRILLION dollar industry. The difference in numbers is as quick as slightly shifting your gaze to read the next paragraph – it describes its volatility perfectly.
At this point, you should realize that this crypto thing is kind of a big deal. And that there’s an enormous gap between the economic impact of crypto versus its portrayal in the popular press and that it might seem a little hasty to cut India off from an emerging trillion-dollar industry.
Balaji S. Srinivasan, the co-founder of Earn.com, an angel investor, and bitcoin enthusiast, recently stated in his blog that India should reconsider banning cryptocurrency from staying on the same platform as the rest of the world by making an evolved decision to launch the digital rupee backed with digital gold. In his view, India will save billions of dollars by 2025 if it stays with the ban on Bitcoin.
What is Bitcoin?
Bitcoin is the fastest-growing asset market. It held 50% of the cryptocurrency market share as of 05th April 2021. It is most popular among the age group of 18-34, according to a poll conducted by Harris Poll.
What I think: What is Bitcoin, and why is the world going gaga over a technology upgrade?
What I say: Bitcoin is the future. Elon Musk sold 10% of Tesla’s bitcoin to demonstrate liquidity. I think it is about time I start investing in cryptocurrency.
Young investors who think in numbers and who can take the liberty to endure the brunt of the volatile investment can build their investment portfolios with Bitcoins as their first investment and can take a go at bitcoins.
Benefits of Investing in Bitcoins
- It is a growing market. Seeing people earn more on their investments, organizations have started accepting cryptocurrencies as one of the payment methods, and startups across the globe are jumping on the bandwagon with new ideas to concretize the market.
- Inflation risk is negligible. Currencies are governed and minted by authorities. Bitcoin does not have a centralized agency that controls its limit.
- Most countries have realized that traditional currencies can co-exist with bitcoins, a universally accepted method of transaction. Therefore, approving its use.
Having said that, bitcoin lacks any intrinsic value. The journey ahead for bitcoins is long. It needs people who are willing to accept it as a currency with no bounds so it reaches its price stability and gains the trust of the general public.
Ms. Gita Gopinath, Economic Counsellor for the International Monetary Fund, has a contrarian view on Bitcoin.
Bitcoin is an example of a cryptocurrency that doesn’t serve the role of money at all. It’s a very speculative investment class. In terms of substituting for what money is, I don’t think it comes close.
The sentiment is also shared by Mr Tharman Shanmugaratnam, Chairman Monetary Authority of Singapore.
Cryptocurrencies can be highly volatile, as their value is typically not related to any economic fundamentals. They are hence highly risky as investment products and certainly not suitable for retail investors.
The highly volatile nature of bitcoins has surely created a bubble of its own. It is what makes it a risky investment, and no long-term investor or a well-informed financial expert would advise their client to weigh in on Bitcoin and cryptocurrency.
Most financial advisors are torn between the pros and cons of its usefulness and whether it is a currency or an asset. Some experts question its legitimacy as a form of currency, while others think it cannot be used as a medium of exchange unless it is widely accepted.
Some noteworthy disadvantages of Bitcoin are as follows.
- No regulatory: Bitcoin does not have a regulatory body to hold it accountable to or take responsibility for. The very cause of its popularity has become the reason people are hesitant to invest in bitcoins. Due to the lack of centralized authority, it’s easy to inflate the prices simply by hoarding and hiding bitcoins.
- Lack of acceptability: Apart from a handful of online merchants, bitcoins are not accepted as a currency. The reason being it is susceptible to fraud and non-retrievable. For instance, if you send funds to the wrong wallet, they cannot be refunded.
- Energy-Consumption: As if leaving a carbon footprint was already not an issue. Bitcoin needs to be mined in highly advanced computers near a power plant. Countries like China have the most bitcoin miners and they use coal to generate electricity.
- Transparency: Transparency is the one thing that makes any transaction breathable. In the case of bitcoins, it is the single biggest problem that users face. If you pay your friend for the movie tickets he bought for you, the transaction will eventually tell him everything about your past transactions.
- Availability of other investment products: To be frank, With too many options available at the tip of our thumbs, investors need their money to be invested in something that is easily reachable and yields higher profits, not a likely pyramid scheme. For example, fixed deposits, shares, and highly secured bonds.
What are Bonds?
In simplest terms, a bond is an agreement. The borrower agrees to pay interest to the issuer on the money they have put to use for a certain period of time. The interest is usually paid half-yearly or yearly on the principal amount till the time it reaches the end of the tenor. Then the funds are released.
Who issues bonds in India?
- Government (central or state)
- Municipal corporations
Why should you buy Bonds?
Bonds are the most reliable cash stream. They make for a diverse portfolio. Risk adjustment, less volatility, and high yielding are some of the reputable qualities of bonds. Especially when the stock market is volatile or falling, you can turn to bonds for preserving capital.
It’s a matter of patience. The more you wait, the higher the interest. While Bitcoin can be thought of as an investment, bonds depict debt. Corporations that wish to raise capital activate bonds. The first thing any thinking person does during the loss of employment is pay off their debts so they can peacefully venture out into the job market.
Likewise, bondholders are a company’s first concern. In case of bankruptcy, they are paid first, while the stockholders end up losing all their money. Hence, it is a safer passage to park your money for a long time for predictable returns and added incentive of security.
Advantages of bonds
- Less volatile compared to stocks.
- Legally protected
- Provide periodic income
- Sign of diversified profile
- Regulated by government agencies
- Tax advantage
With the huge investment options available in the bond market for a variety of bonds, investors are shifting their focus towards bonds and their objectives to meet their investment goals.