When it comes to investment, people in India generally opt for something where they can avail maximum returns within a specific time frame and with minimum risks involved. Although there are plenty of conventional investment options such as stocks and bonds, many Indians are slowly but surely warming up to the idea of cryptocurrencies, a digital form of currency that can be used to exchange value in the future. While the Reserve Bank of India had, in 2018, banned all regulated banks from holding or facilitating cryptocurrency transactions following reports of digital currency frauds, the Supreme Court struck it down in March 2020.
Following the reversal of the ban, Indians seem to be increasingly looking at cryptocurrency as a viable investment option. But how is it different from traditional options? Let’s take a look.
Cryptocurrency vs Stocks
Let’s start by discussing the difference between cryptocurrency and the stock market. Both cryptocurrency and stocks have their good and bad days. However, stocks have a long history that makes it easier for investors to predict the future. Stocks face different kinds of risks including business and financial, market volatility, government regulations among others. However, cryptocurrencies, on the other hand, are a decentralised structure. They don’t have a government or a group of people controlling it.
Cryptocurrency vs Bonds
Bonds are a loan from a person to a company or a government. In other words, when an investor buys bonds, the company or government from where the bonds have been bought is in debt to that person. The investor will get an interest on the amount for a period of time after which the company or the government will pay back the entire amount. The major risk with bonds is that if the company goes bankrupt, the investor will stop receiving interest payments and even the principal amount.
Cryptocurrency vs Forex
Forex, also known as foreign exchange, usually attracts investors investing in foreign currencies. Cryptocurrency is a globally accepted form of currency and the investors who opt for foreign exchange also deal globally. But here the catch is the different economic conditions of the countries. Investors can expect positive results from forex only when the economy of the country they are investing in is in a good state. The capital gains for forex can be gauged only on the basis of the economy of the respective country. This makes it riskier as compared to cryptocurrency.
Cryptocurrency vs Precious Metals
We know in today’s time, the main reason why people consider precious metals to invest in, is to buy jewellery and other such items. So, the only value determiner of metals like gold and silver is the market sentiment. Now, let’s talk about the risks. The risks involved with investing in precious metals include their portability, import taxes and last, but not least, their need for tight security. Whereas, cryptocurrencies, on the other hand, don’t need anyone to physically transfer them. Since it is all digital, it makes it comparatively easier for the investor.
Cryptocurrency vs Fixed Deposits
Fixed deposits are supported by the government. FDs are good when you have a long-term investment plan when you have to wait till maturity. However, those who exit their FDs before they mature, might as well go ahead and invest in cryptocurrency. At least, the market is volatile there and people can make quick decisions. People can exit when they know the market prices are going down while dealing with cryptocurrency. But having said that, no extra effort of mining is required for FDs. Cryptocurrencies need to be mined. They need investors’ time and attention. Whereas, for FDs, you can forget it after investment till it gets mature.
Although people are much comfortable and aware of the traditional investment plans, cryptocurrencies are new and can have their own pros and cons. So, choose wisely.