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When Mukesh Jindal (44), a financial advisor from Mumbai, started investing in cryptocurrency way back in 2017, he looked at it as a way to earn some quick money. But as years passed and he began understanding the asset class better, he realised that it had the potential to be a long-term investment opportunity. 

“Today, I have almost 15-20% of my money in crypto. And this is not a short-term investment because you do not want your hard-earned money to go to zero,” says Jindal who uses the CoinDCX platform for his investments.

Just like Jindal, there are several other investors who are looking at what was once considered a complicated asset class as a long-term investment opportunity and placing calculated bets on it to diversify their investment portfolio.  

According to a 2024 user survey by Indian crypto trading platform Mudrex, 65% of its users view cryptocurrency as a long-term investment. 

“Two to three years ago, more than 70% of users said that they are investing in it for the short term,” notes Mudrex’s Founder and CEO, Edul Patel.

This essentially means that investors are holding on to crypto assets for over a year, as opposed to selling them in just a few weeks or months. 

This shift in outlook reveals the evolution of the average crypto user’s preferences and intent and their strategic approach towards cryptocurrency investments.

What investors are investing in

According to Chainalysis’ ‘Global Crypto Adoption Index’ published last month, India is leading the way in global adoption of cryptocurrencies for the second consecutive year. And it is the young Indians who are setting the trend. 

The average age of an Indian is 29 years, and it is at this age when people start creating real wealth. 

Commenting on the rising interest in cryptocurrency among young Indians, Patel says, “It is a generation that’s very young, very modern, very much on the internet. As a result, they are looking for more and more investment options. This also is an age when people want to take more risks. They want to understand how they want to spend their wealth.”

The growing interest in cryptocurrency can be traced to the changing landscape of the asset class globally. Over the last couple of years, investors have begun to recognise Bitcoin as a store of value in different forms and fashions.

Store of value refers to the asset’s ability to retain its purchasing power over time. People investing in cryptocurrencies like Bitcoin, which have a limited supply, can derive value over time as demand potentially rises. The coin is often referred to as ‘digital gold’ for it can be held and saved without its value depreciating significantly.

Mridul Gupta, Founding Partner at cryptocurrency exchange and trading platform CoinDCX, says, “Governments and big institutions are recognising Bitcoin. Obviously, word travels and people see the value and have started investing more in the category.”

Utsav is a 35-year old Mudrex user from New Delhi who works in the ecommerce space. He first invested in cryptocurrency about seven years ago when he had to make a cross-border payment. He bought Bitcoins worth Rs 10,000 worth to facilitate this transaction. Back then, the Bitcoin was worth $9,000. Last week, the Bitcoin crossed $75,000, with the presidential election race in the United States heating up.

“In 2017, I had just started working. With the salary I was earning, I never looked to invest in risky assets such as stocks. Cryptocurrency was my first risk asset investment. And I looked at Bitcoin and a couple of other coins such as Ethereum which I found interesting. In a couple of days or weeks, I noticed that the price would change quite a bit. So, I got interested in that volatility,” Utsav says. 

Indian investors are looking to diversify their investment portfolio across various long-term product offerings and strategies within the crypto investing landscape—these include systematic investment plans (SIP), buy and hold strategy, value investing, and portfolio diversification. 

To protect investments from the volatility of the market, Jindal advises investors to look at crypto SIPs. 

“SIP is the best way if you don’t understand (the crypto market). Because, over a period of time, your cost value will get averaged out. I think that’s a good approach for investors,” says Jindal. According to him, SIP helps investors looking to understand the lay of the land. 

Utsav has dabbled in a number of product offerings, including SIPs and automated strategies such as trading bots. He says once an investor is educated enough to understand the market volatility and the asset class, crypto can serve as an useful asset to add to their investment portfolio. 

Educating the new crypto investor

Given that cryptocurrency is quickly emerging as an investment choice among Indian investors, it’s important for trading platforms to educate users about the asset class and its investment scope. 

CoinDCX’s Gupta says, “Over the past one to two years, we have done a lot of activities at the grassroots level to promote crypto education. When you educate a person and help them make the right decisions, then the person stays in the category for a longer period of time.”

CoinDCX organises seminars and puts out blog posts frequently on its platform to help users understand the asset class better and take informed investment decisions. 

According to Gupta, users raise a range of pertinent questions at these events. “The questions have moved from should I be investing (in crypto assets) to whom should I invest with and how much capital should I be investing. The questions and the learnings have matured.” 

He advises investors to invest 5% of their total investment capital in cryptocurrency.  

Patel of Mudrex believes education remains one of the biggest challenges today in the Indian crypto space. “That (education) was the challenge on day one, and that is still the largest challenge today. We have expanded a lot on that front,” he says. 

Mudrex provides users with a feature on its platform called Mudrex Insights, which provides in-depth information on every single token listed on its exchange. The sessions delve into fundamentals and technicalities to guide users on the risks and volatility associated with the asset class and information on various tokens— ranging from memecoins like Shiba Inu to stablecoins like Tether, which is pegged to the US dollar. 

Harsh Dalmia, CEO of Watermark Capital, a boutique corporate advisory firm that manages family capital, advises users to equip themselves with information and become more aware of the market conditions before parking their money in cryptocurrency. He also says that investing in the space requires a certain appetite for risk, as regulations are limited, especially in India. 

Apart from the risks and market volatility, investors must also be aware of the tax implications of trading in cryptocurrency. In India, users have to pay a 30% tax on profits from trading, selling, or spending cryptocurrency. There is also a 1% tax deducted at source (TDS) on all crypto transactions. These taxes are influencing the investment decisions of investors. 

Crypto exchange CoinSwitch’s Co-founder, Ashish Singhal, says, “Because of TDS, the short-term trading (of crypto) has reduced a bit.”

The imposition of 1% TDS also means that every time an investor sells, there is a 1% withholding tax which results in capital reduction, explains Singhal. “But users continue to hold Bitcoin and Ethereum for the long run.”

The overall landscape 

The crypto landscape in India has witnessed a see-saw over the last few years. 

In 2018, the Reserve Bank of India (RBI) issued a circular prohibiting banks and other financial institutions from providing any services related to cryptocurrencies and restricting crypto trading. However, in March 2020, the Supreme Court of India lifted the ban stating that the RBI’s restrictions did not have a proper reason based on the Constitution. Additionally, the court also said that the RBI did not have the required data about cryptocurrency to justify the ban. 

India is lagging behind other countries when it comes to regulatory guidelines. For instance, in the United States, the Securities and Exchange Commission, the equivalent of India’s Securities and Exchange Board of India, regulates the asset class. However, India is yet to see a specific regulator for cryptocurrency. 

In 2021, the RBI introduced the Cryptocurrency and Regulation of Official Digital Currency Bill but the bill did not make it through the Parliament, leaving investors on the edge about the future of the asset class. 

However, India has put in place a few regulations for cryptocurrency under the Financial Intelligence Unit, which requires companies to be responsible for compliance with the Prevention of Money Laundering Act. These regulations require crypto exchanges and other virtual asset service providers to follow stringent Know Your Customer (KYC) procedures and monitor any suspicious transactions. 

Gupta rues the lack of a full-fledged regulation for cryptocurrencies in India, barring some advertising guidelines and and data storage guidelines. 

Advertising guidelines for virtual digital asset products mandate that advertisements related to these assets carry the following disclaimer: Crypto products and non-fungible tokens are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions and data storage guidelines. 

“On one hand, you will see India being ranked number one on industrial reports when it comes to any form of crypto adoption. And, on the other, you see limited clarity on policy and regulation in the market,” says Gupta. 

This ambiguity has prompted several startup builders in the space move out of India, Gupta adds. 

For instance, regulatory uncertainty is said to have kept decentralised network Polygon out of India. The startup, which connects Ethereum-based projects and blockchains, was founded by Indian origin co-founders Sandeep Nainwal and Jaynti Kanani. It is registered as a British Virgin Islands entity. 

“I believe that the lack of clarity on where the policy and regulation ends has led to a lot of unorganised action in the space. If you put efficient and transparent guardrails, this unorganised activity–which is contributing to India participating and leading the charts in crypto adoption–will convert to organised activity,” says Gupta. 

Having said that, a lot of entrepreneurs are emerging and jobs are being created in the organised market as well, he adds. 

Can clear regulations and more organised activity in the country help boost investor confidence and lead to more investments in cryptocurrency? One has to wait and watch.