What will you do if your investment zooms by over 300% in just a few months? Like most investors, you have four choices:

A. Sell them all

B. Book partial profits

C. Buy more

D. Hold for long term

It turns out that many crypto investors ticked the last option when the market was rallying in 2021. One of them was like Bangalore-based senior IT professional Sanjeev Mathur (see picture). The value of his crypto holdings rose from Rs.5 lakh to Rs.22 lakh but Mathur didn’t sell. “I didn’t need the money, so there was no need to sell,” he says.

In hindsight, that was a bad decision. The crypto market is very different from the stock market where prices are determined by fundamentals and holding for the long term has yielded high returns. In the crypto market, prices are driven by sentiments, and volatility can be unnerving. Last month, the Luna coin crashed to zero. Other coins are also down, some by almost 80-90% from the 2021 peak (see graphic). Is this the beginning of the end for cryptos? The industry does not think so. “Prices are driven by sentiments. There will be bumps along the way, but we are here to play a long-term game,” says Rajagopalan Menon, Vice-President, WazirX. Crypto prices have crashed, but Rajagopalan is confident that they will recover. “Bitcoin has lost 50% of its value seven times in the past 12 years,” he says.

Others are putting up a brave front as well. “Like any other market, the crypto market is also cyclical. All asset classes are in a downturn right now, and the crypto market is also going through a bear phase,” says Mridul Gupta, COO, Coin DCX. He points out that though Bitcoin is down 75% from its 2021 peak, it is still 10x higher than it was five years ago.

Sitting in his 16-storey flat in a leafy part of Pune, software engineer Anand Subramanian (see picture) has pinned his hopes on the recovery. Subramanian, who used to invest mainly in small savings schemes and insurance policies and a little in mutual funds, was lured into investing in cryptos when he saw his friends and colleagues make big money in this new space. His crypto portfolio is down almost 60% and Subramaniam has vowed never to invest in cryptos again.

Waiting for greater fools

Like many other investors, Mathur and Subramaniam are waiting for greater fools to buy their cryptos. Little do they realise that even if the crypto market recovers, chances of reaching the 2021 levels are fairly remote. The global markets are in turmoil after the hike in interest rates by the US Fed and the liquidity that boosted the markets during the past two years is quickly drying up.

Back home in India, the changes in the tax rules for cryptos has further dampened investor sentiments. This year’s Budget has put a flat tax of 30% on all gains, irrespective of the income level of the investor. This is very high compared to tax on other assets and income sources. Capital gains from stocks and equity funds are taxed at 10-15% and non-equity investments, property and gold taxed at 20% or marginal rate. But every rupee earned from cryptos will be taxed at 30%, even if the investor has no other income. Worse, losses from one crypto can’t be adjusted against any other income or even the gains from another crypto. They cannot also be carried forward to subsequent years. So the government pockets 30% of the gains while …….

Source: https://economictimes.indiatimes.com/wealth/invest/is-cryptocurrency-story-over-4-things-crypto-investors-should-know-to-navigate-the-high-risk-arena/articleshow/92441791.cms

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