Bitcoins enjoy a massive popularity in India. With the economy rising and India on it’s way of becoming a $5 trillion economy by 2025, lot of people here want to try new things, like bitcoins. But before we get into investment matters let’s study the basic of bitcoins and cryptocurrency.
A General Overview Of Bitcoins
Bitcoins are a form of currency – digital currency (otherwise known as cryptocurrency). A currency is needed to trade goods and services. In our present form of economy we use so many materials (and their combinations) that it is impossible to exchange goods. Consider the example of a smartphone. It consists of aluminium, batteries, plastic, glass etc. To make one smartphone a company needs all of this and electricity, power and human resource. Imagine trading all these resources without tying them up with a single resource of currency (or money). It would become a nightmare to do even basic things.
If you were living like a monk then it would have been easier – Just trade 3 basic resources – Food, house and water. But in a modern economy we depend on too many resources and hence we need a currency. Now currencies like INR, USD etc. are created by printing machines and are controlled by governments and hence people trust these currencies.
Cryptocurrencies on the other hand are created by computers and aren’t backed by any government (Japan is an exception). The technology used is complex but is all digital and hence no actual notes are printed. You can use any mobile device or computer to make the payment. The value of these coins is tied to actual currency but governments can back out anytime and the entire value of these coins can get wiped out in a day.
You see it is not that difficult to create a currency. It is all about having faith and actual usage. Imagine me having 1000 readers on this blog. I can come up with a printed paper (with my face on it) and if “we all agree to use it”, we an use it. I can ask you to recharge my mobile phone and I will give you 100 Amitcoins and as long as other reader accepts it too, you can ask him to pay your internet bill. And if none of us has a problem we won’t get into legal trouble as we aren’t doing anything else except trading.
All of us are agreeing that we will use my coin to trade and hence a new currency just got created. Ofcourse not many people will consider it safe (as no one knows me or trusts me), but it can be done.
Similarly cryptocoins are created using computers and have no face or organisations backing them (I think Ripple is backed by Google) and hence people (ordinary citizens not having knowledge about currencies) don’t trust it that much hence the entire value of these coins depends on actual usage.
Now let’s get into actual usage of Bitcoins and if we should invest in them.
Investing In Bitcoins Or Other Cryptocurrencies In India
You can buy bitcoins using INR currency on sites like Koinex, Zebpay etc. but if you want to hold it then you should read this section till end and then make your own informed decision.
Bitcoins aren’t used that much in daily lives. People know what they are, and that the value has skyrocketed in past 3-4 years. But you see bitcoins are highly speculative, and in simple words it means “value is going up because people are still buying it at higher valuations, thinking that it will continue to go up”. It does not have any fundamentals to justify the rise in valuations.
Bitcoins are good for three main purposes – Online shopping, currency exchange as a tourist and payments (to employees, freelancers etc.). But there are few drawbacks such as volatility and high transaction fee.
Almost no major eCommerce company uses bitcoins for accepting payments, as the transaction fee is way too much. An average transaction using Bitcoins (BTC) costs atleast $15-$20 (and can sometimes go up to $26). Imagine buying an item worth $40 and paying $26 extra. Because this cost is technological, it cannot be avoided and hence, either the eCommerce company or the customer will pay this fee, making the purchase costly. And how is this any better than paying in USD or INR? Almost all major eCommerce companies generate revenue through volume (more transactions which on average cost between $20 to $60), so no one wants to use it.
If you visit some other country you can convert some of your own currency (your own country’s currency) into bitcoins and then convert it back into whichever currency you want (the currency of the country you are visiting), to use it for making payments (going shopping etc.)
You can also use bitcoins to buy something online (a list of uses has been compiled below) or pay some other person (like a freelancer) to get a job done. But there is the concern of volatility. The price of Bitcoin corrects by almost 30% every now and then, can rise up by 10%-20% and then go down just like that. Imagine you convert your currency (as a tourist) or receive payment as a freelancer when the price of BTC is 10,000 USD (approx. Rs. 6 lakhs) and then in a week it goes down by $2000. You could lose a lot of your money within just days. Now you can sit and wait for it to recover thinking it will go up (hence speculative) and risk losing more money. This is also the reason why no one wants to be paid in coins but in their own currency. Freelancing might not get you that much money but actual jobs bring in a lot of cash in an individual’s hands, and all that money can go down the drain very quickly.
This is the main problem with BTC being considered investment worthy. It goes up anytime on just some news when the actual usage is only buying and selling them, and then crashes again. You do not want to put your hard earned money into something which is this volatile. And it is these limitations which affects the usage of bitcoins and hence the overall value.
Plus there have been so many cases of security breaches with all these wallet websites. I remember atleast 3 times when hundreds of millions worth bitcoins were hacked by someone (or a team) and the company went bankrupt. Of-course there have been many bank robberies too, but you can hold someone responsible (the managers or the government). In these cases almost no one get’s caught because if someone transfers all the coin into some other wallet and cash out, he/she can claim that it was a gift or they got luck etc. And wallets don’t have any real identity attached to them, these transactions cannot be traced (hence all the governments asking people to not invest in them).
Bitcoins Vs. Stock Market
Unlike bitcoins stocks have some fundamentals behind them (their value depends on the company) and hence are safer bets (*nothing is 100% safe). You cannot get crazy high returns like bitcoins but you need to draw a line between greed and good returns. When something has no fundamental value then you need to stay away from it anyway (no intraday, short term or long term gain).
Besides the Indian stock market will remain in growth mode atleast till 2025 (I don’t know about external factors affecting the market though) and hence you should consider investing whatever throwaway money you have (if you have any) in equities than bitcoins. There is no point in putting money into something which just goes up without any sound reason.
Still there are pretty good examples of multibaggers in India. Take the case of HSCL, HEG, Graphite India, BEPL etc. If you can choose the right companies you can get very good returns. I know some people who got 80%-90% returns on their whole portfolio. You can also check the returns on some of the smallcases (a service by team Zerodha). There are few which gave almost 70% return in last one year so there is no need to risk your money in bitcoins when you can get returns like these from stock market.
I personally bought some bitcoins (worth $24) back in November 2017. I converted it into bitcoins when the price fell to $10,000 but as of this post the price is down to $8,800 and my BTC is valued at $16. I will keep holding it for like 5-10 years to see what happens of it but I don’t think that the value will go up by ten times or something like that.
I remember mentioning that bitcoins have limited usage, so I have put few services (all online) where you can buy things using bitcoins. It can come handy for those who have few coins and don’t want to cash out because of high transaction fees but don’t want to hold it either. You can spend it on below services.
5 Ways You Can Use Bitcoins In India
A major problem with cryptocurrency is lack of their usage for making payments and purchasing goods online or offline.
No eCommerce or major retail outlet in India accepts bitcoin and there are 3 main reasons for this :
1) Fear of unknown : No one controls bitcoins (unlike our own currency which is managed by our government). If something had to happen (a major crash in the value of bitcoin or a security breach no one can be held responsible). And hence no serious company wants to depend on this currency for collecting revenues. While people might like the idea of “free currency” companies won’t as it poses big risks.
2) High transaction fees : Every time you make payment through bitcoins some fee has to be paid (usually by the seller unless he takes it from you). The fee can be as high as $25 per transaction. Imagine you buying a t-shirt on Flipkart or amazon, you will have to pay a fee of Rs. 1500 to buy a t-shirt worth Rs. 500-800. Now because the average transaction price is only Rs. 8000-10,000 on major eCommerce sites, the fee is way too high.
3) Volatility : Imagine you as a company collect 100 bitcoins when the price was 10,000 and in few days the price goes down to 8,000, you will lose USD 800,000 just like that and not many companies can afford that.
Still there are some companies where you can purchase digital goods using bitcoins and here I will list some companies which accept bitcoins in India :
1) Microsoft – You can buy softwares or games for xbox or windows platform using bitcoins. Microsoft being a tech company itself supports technological advancements and hence allows payment through bitcoins.
2) Humble Bundle – You can buy humble bundle games (monthly subscription costs $12 or Rs. 720) using bitcoins.
3) Namecheap – If you want you can buy a domain name from namecheap using bitcoins. This is good for entrepreneurs or webmasters who want to build a website.
4) Mega.co.nz – Looking for a online file backup service to store your files and photos? Then Mega.co.nz accepts bitcoin payment. Ofcourse it does allow 50 GB free usage limit, but if you want to upgrade you can pay through bitcoins.
5) Freelancing – Cryptogrind and XBTFreelancer are two websites where you can hire people to do some freelancing work for you.
Let me know what you think and if you bought bitcoins and exited with lot of profits or are still holding.