Bitcoin’s Volatility Calls for Long-Term Investment Approach
Investing in **Bitcoin** involves a high-risk appetite and a long investment horizon due to its volatility. **Bitcoin**, a pioneering cryptocurrency invented in 2008 following the financial crisis, has experienced significant fluctuations in value. It first gained commercial use in 2010 and has since seen its value rise sharply, only to fall and rise again.
Despite central banks and governments hesitating to recognize cryptocurrencies, **Bitcoin’s** resilience and growth have made it a potential asset class for portfolio diversification.
**Bitcoin** operates on blockchain technology and is divisible into eight decimal places, with the smallest unit known as Satoshi. Its journey has included remarkable growth, reaching an all-time high in September 2021, then falling significantly in the wake of the FTX exchange crash in November 2022, and recovering to trade at around $50,000.
The cryptocurrency’s value increased by 158% in 2023, influenced by interest rate changes and the collapse of several banks. However, retail investor enthusiasm has been notably low, despite the approval of Bitcoin ETFs by the US SEC, signaling cryptocurrency’s gaining legitimacy. The upcoming **Bitcoin halving** in mid-2024 is expected to further influence its price.
For retail investors in India, **Bitcoin** offers a diversification option but comes with caution due to its price volatility. **Bitcoin ETFs** are accessible through the LRS, allowing investments up to $250,000 per financial year. However, investing in **Bitcoin** requires a wallet for storage, and gains are subjected to a 30% tax plus a 1% TDS on transactions over Rs 50,000. **Bitcoins** do not provide dividends, interest, or rent and might not align with ethical investing principles due to environmental concerns associated with mining.
Overall, **Bitcoin’s** journey has been marked by highs and lows, with its value experiencing dramatic shifts. While recognizing cryptocurrencies may still be a challenge for governments and central banks, the potential for **Bitcoin** as a portfolio diversification tool cannot be ignored. However, it is crucial for investors to approach **Bitcoin** with a long-term perspective, taking into account its volatility and the risks associated with it. With the upcoming **Bitcoin halving** expected to impact its price, retail investors in India can explore **Bitcoin** as a diversification option, but should tread with caution due to its price volatility and associated tax implications.
Analyst comment
Neutral news.
As an analyst, the market for Bitcoin is expected to continue experiencing volatility due to its nature. The upcoming Bitcoin halving in mid-2024 is likely to have an impact on its price. Retail investors in India can consider Bitcoin as a diversification option but should be cautious of its price volatility and associated tax implications.
