Should you do cryptocurrency SIP? Systematic Investment Plan Bitcoin, Ethereum, Dogecoin

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Investing in cryptocurrency is a high risk activity. Several experts would advise you to invest or trade in crypto with the money you will not regret. Not only from the point of view of volatility, but also from a regulatory perspective, there is little clarity. In India, the RBI has warned investors against holding cryptocurrencies. Still, people keep investing and indeed the crypto community in India is optimistic about the future.

Even after weighing all of the risks involved, if a person decides to invest in cryptocurrencies, they can do so in many ways. One of them is SIP, which is currently being offered by some exchanges in India. A person can also make SIP independent by buying crypto daily or monthly for a fixed amount and storing it in their own preferred wallet or in a hardware wallet. However, one question arises as to whether or not SIPs should be made in cryptocurrencies?

Many financial experts believe that after weighing all the risks and volatility, SIP could be a preferred way of building wealth through cryptocurrencies for first-time investors.

Dr. Vinay Asthana, Associate Professor at the Alliance School of Business, told FE Online, “The main benefit of a Systematic Investment Plan (SIP) is that the timing issue of the market becomes irrelevant. This makes SIP an effective strategy in the face of market volatility. When the markets are efficient, timing the market is likely a difficult and often pointless task.

SIP makes sense for long-term investors in traditional assets like stocks and mutual funds. Regarding cryptocurrencies, Dr. Asthana that crypto assets are many times more volatile than traditional asset classes. This is a strong argument that SIP supports for crypto assets.

Dr. However, Asthana pointed to several factors weakening the case for SIP in crypto:

• Although the evidence is mixed, the crypto markets are not as efficient as the stock markets.
• In its short history, crypto assets have produced the highest returns of any asset class. But is it sustainable? This question polarized the world. For some it is a revolution comparable to the internet revolution; for others it is nothing but a bubble. While the technology is unstoppable, the implications for investment are far from clear.
• The investment implications are further skewed by the fact that valuation of crypto assets is fundamentally different from traditional assets.
• In addition, the possibility of adverse regulatory changes remains a serious risk factor.

“Given these facts, SIP appears to be a sensible strategy in crypto-assets, but it should be addressed to a limited extent as some fundamental questions regarding crypto-assets remain unanswered,” said Dr. Asthana.

Archit Gupta, Founder and CEO of Clear, said: “Cryptocurrencies are not legal tender in India. There is considerable uncertainty with cryptocurrencies, as RBI has repeatedly warned investors not to hold them. In addition, cryptocurrencies are very volatile, with drastic price fluctuations within days. You should exercise extreme caution before investing your savings in cryptocurrencies. “

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However, Gupta said that SIP can be the preferred route when looking to invest in cryptocurrencies as it spreads your investments out and averages your purchase cost over time.

“On many platforms, you can start SIPs in cryptocurrencies at just Rs 100-Rs 500 per rate. In addition, many investors opt for the daily SIP over the weekly or monthly option, as the price of cryptocurrencies can fluctuate widely over a period of one month. You can consider investing in cryptocurrencies through SIP if you are a first-time investor looking to invest small amounts. However, platforms may only offer the SIP functionality for the leading cryptocurrencies, ”he said.

Control impulsive investments

Cryptocurrencies are one of the most volatile instruments available for investment. Investors are often driven by their impulses. However, this can be dangerous. SIP can help control this impulsive investment.

“Due to large price fluctuations, it is crucial to strategically plan the entry and exit points for these systems. In this context, an investment technique like SIP, which reduces the investor’s risk of market volatility, is extremely helpful. SIP will also help avoid impulsive investments in cryptos. Aside from SIP, other risk mitigating strategies that are becoming increasingly popular for investing in cryptocurrencies are investing in a basket of cryptocurrencies or opting for index funds, ”said Prof. Purushottam Anand, Assistant Professor at IFIM Law School.

“There are also index funds that are only involved in the top 10 or top 20 cryptocurrencies. However, since most of these investment products / platforms are not regulated in India, investors need to carefully analyze and research such systems before investing. It can also be helpful to consult a financial advisor before investing, ”added Prof. Anand.

(Disclaimer: The suggestions / recommendations on cryptocurrencies in this story are from the respective commentators. Financial Express Online takes no responsibility for their advice. Please consult your financial advisor before trading / investing in cryptocurrencies.)

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source https://www.bisayanews.com/2021/09/26/should-you-do-cryptocurrency-sip-systematic-investment-plan-bitcoin-ethereum-dogecoin/