“I started my research purely from the knowledge perspective so that I don’t appear clueless when my clients talk to me about it. I felt I should understand all about it before I write it off or look at it as an investment option,” said Pande.

Initially, he allocated 1-2% of his monthly investment to crypto, taking it to 30% now.

“My two-year compounded annual growth rate (CAGR) has been roughly 150%,” said Pande.

While Pande invested in crypto assets such as Bitcoin, Ethereum, Arbitrum and Uniswap, he continued his systematic investment plans in mutual funds, exchange traded funds and contributions to the National Pension System.

For the young

Pande’s story is similar to many people who made good money from crypto. It is an asset class for the young generation that understands technology, Ashish Singhal, co-founder of CoinSwitch, a crypto exchange, said at the Mint Money Festival on 22 November.

“At least 4-6% of the portfolio should be kept in crypto. But I emphasise it is a risky investment. They should diversify in other asset classes too,” said Singhal.

Data from CoinSwitch shows that Bitcoin has rallied 50% so far in 2024. It fell 64% in 2022. Its standard deviation, the variation from the average price, is too high at 155% compared with 13% for the S&P 500. The greater the standard deviation, the higher the volatility of an asset class, making it a riskier investment.

Singhal said that as an engineering student who studied computer science, he could see the potential that blockchain holds. Blockchain is a decentralised, secure and transparent way to store and share data and transactions, especially in cryptocurrencies, across a network.

“It fascinated me how blockchain can bring in transparency in the system. For example, if a middle-class person goes to a bank, he may not get the same treatment as a well-off person. Blockchain can replace people and their biases with technology. We should rely on facts and data to evolve the financial ecosystem,” said Singhal.

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Critics contend that cryptocurrencies like Bitcoin have no intrinsic value and are not backed by anything. However, on the underlying value of Bitcoin, Singhal said it is like digital gold.

“Just as gold is valuable because it is precious and exists in a limited quantity, Bitcoin is scarce too. Only 21 million exist, which can be fractionalised up to eight decimal places. Its value comes from its usage. It has solved the biggest problem in mathematics, which is about the problem of trust in making transactions. Instead of banks, can a simple code running on thousands of computers establish trust between you and me? Instead of involving a third-party, can a peer-to-peer network facilitate transactions? Bitcoins have created this network,” said Singhal.

Bitcoins have other use-cases. US President-elect Donald Trump said he will create a friendly regulatory environment for cryptocurrencies.

“He wants to make the US the crypto capital of the planet. The country is discussing whether they should use Bitcoin as a treasury reserve along with gold. They want to start off with 5%. It is a big use-case. Since Bitcoin supply is limited, this move will reflect in prices,” said Singhal.

On diversification within the crypto space, Singhal said other cryptocurrencies such as Ethereum, Lithium and Solana should also be looked into.

“Every crypto is trying to solve a use-case and that is how the value is derived. Bitcoin dominates the market. Ethereum is like AWS (Amazon Web Services) in this space. I suggest keeping 80-90% of the crypto portfolio in Bitcoin/Ethereum and the rest in others,” he said.

Pande, a fan of passive indexes, invests in the Bloomberg Galaxy Crypto Index (BGCI) for a diversified crypto portfolio.

Cybersecurity in crypto assets

Frequent hacking episodes and cyberattacks on crypto exchanges and platforms create mistrust among investors. Cryptocurrency exchange WazirX suffered a massive data breach in July 2024 that wiped out $230 million of users’ holdings amounting to about half of the platform’s reserves. WazirX described it as a “force majeure event” beyond its control.

Centralised depositories that store stock market shares safely such as the National Security Depository Ltd and the Central Depository Services Ltd do not exist for cryptocurrencies. Crypto exchanges create their own custodial solutions.

Talking about cybersecurity, Singhal said they have their own exchange where buyers and sellers meet and decide prices of crypto assets.

“We provide custody solutions to ensure your cryptos are stored safely on our platform and CoinSwitch app is the broker app which uses the exchange in the backend to fulfil your order and use our custody providers to store your cryptos,” said Singhal.

Singhal said that even though the banking sector is regulated, digital frauds happen.

“The new tech comes with its challenges. With the internet value that is being accrued into cryptos, hopefully we will have better solutions in the future to not have such incidents,” he said.

Cryptocurrencies in India

Crypto assets are not regulated in India. The crypto space does not have a regulator like the Securities and Exchange Board of India or the Reserve Bank of India, which investors can approach for stock and banking-related issues.

“India does not acknowledge cryptocurrencies as an asset class. Regulations are yet to come. Until it is done, innovation will not happen. People are moving to Dubai and Singapore to try out crypto innovation,” Singhal said.

Talking about use-cases in India, Singhal likened the crypto trade to fractional real estate buying and selling, which is a reality in the country with real estate investment trusts.

“Fractionalisation can be handled directly by blockchain if the underlying chain exists. In Dubai, one can buy a house through blockchain. The entire chain can be seen on blockchain. It increases transparency because the data is unmodifiable and is stored on multiple computers, so it won’t get deleted,” he said.

In India, one has to pay a 30% tax on profit from trading, selling or spending cryptocurrency. Additionally, a 1% tax deduction at source is applicable on the sale of crypto assets exceeding ₹50,000 ( ₹10,000 in certain cases) in a financial year.

Note: Since crypto assets are not regulated in India and there is the risk of cybersecurity attacks, be careful before investing in it.