Bitcoin investing in India I Bitcoin investing in India: Few things to know before you start trading

Bitcoin has been on a roll since last year, witnessing a near tenfold rise from its March 2020 levels. It surged to $40,402.46 on Thursday, registering a 900% rise from $3,850 mark in March last year riding the cheap liquidity wave created due to fiscal stimulus measures by governments worldwide and US dollar debasement.    

The digital asset class first made its debut in 2011 touched the historic $20,000 figure in 2017 and has been demolishing its previous highs with new ones constantly. Experts attribute this stellar run to increased awareness and broad-based institutionalisation of the asset class.  

While there are many like American economist Nouriel Roubini who dislike it while others predict it will reach almost $100,000 within a year.

Chris Woods of brokerage Jefferies believes that 2020 was the year of institutionalisation of Bitcoin. It became investible for institutions with custodian arrangements available and with prominent investors and indeed institutional investors declaring that they have bought it, he said earlier. 

It has now become part of the system with opportunities also for retail investors to buy into it via quoted vehicles, be it the Greyscale Bitcoin Trust in America or the recently launched VanEck Vectors Bitcoin ETN traded on the Frankfurt exchange. This is important since, before such arrangements were in place, there was always the risk that Bitcoin accounts could be hacked. The other risk, of course, was that Bitcoin would be declared illegal because it was used for nefarious purposes, such as illegal narcotics transactions, he further said. 

There are myriad risks while investing in this unregulated asset class but those who have their mind made up need to finalise the exchange through which they want to trade it.  

How to select cryptocurrency exchange  

Order book: It is an electronic list of buy and sell orders organised by price orders, volume etc. It is important to compare order books of different exchanges and expert comments on forums to find out which is most credible in terms of price promised and price delivered with minimum discrepancies. Most cryptocurrency exchanges display their order book and can be easily compared and analysed. Relatively high volumes indicate transparency and legitimacy. 

Documents required to open an account: While there are no official regulations on know your customer (KYC) norms for cryptocurrencies in India, exchanges have developed their own mechanisms. While keeping security in mind, it is important to note that stronger KYC mechanism makes the platform stronger against scams which is utmost for investor safety.

Custodian: While the primary function of an exchange is to match buy and sell orders the safekeeping of them are done by custodians. A custodial services provider is responsible for safekeeping of securities, services performed NSDL and CSDL in context of Indian stock market. For bitcoin, though, there are exchanges which offer custodian services as well. In such a scenario it is prudent to be sure of the credibility of exchange with respect to this.

Other factors to watch: It helps to know about the public profile of top management and founders of such exchanges. It helps if your exchange of choice is listed on coinmarketcap.com which lists best exchanges from around the world.