The gyration in their prices or even their legality notwithstanding, cryptocurrencies have got ordinary investors interested. And, it’s not just about the Bitcoin. Several more coins have joined the party. Dogecoin gave over 8000 percent returns between January and April 2021. Ethereum’s price rose to Rs 1.88 lakh, from Rs 92,593 at the start of the year. But prices fluctuate quite wildly.
If you do not understand cryptocurrencies at all, this may not interest you. But if you are one of those following the trends and wishing to nibble in cryptocurrencies, here’s what you must know.
From which exchange should I buy a cryptocurrency?
Cryptocurrencies are unregulated instruments. Therefore, anyone can start a crypto exchange. “That is why, first, you should check the background of the core team and founders of the crypto exchange,” says Darshan Bathija, CEO of Vauld, a global crypto exchange and lending platform.
“New crypto exchanges will have fewer investors. They will have low liquidity with very few trades,” says Nischal Shetty, Founder & CEO of WazirX, a cryptocurrency exchange.
Understand the mechanisms that the exchanges use to safeguard your funds and investments. For instance, a two-step verification process for logging in is essential.
Vikram Subburaj, CEO and Co-founder of Giottus, says that a good customer support system goes a long way in comforting investors since most are dealing with cryptocurrencies for the first time.
Last, find out how many coins your exchange allows you to buy and sell. For instance, a lot of investors wanted to trade in Dogecoin this year, but certain exchanges didn’t support that cryptocurrency.
Also read: Should you invest in bitcoin cryptocurrency?
What is the process to open an account with a crypto exchange?
You have to follow the know-your-customer (KYC) process while opening an account. Barring minor differences, most exchanges require your Permanent Account Number (PAN) card and an identity proof such as your passport, Aadhaar or driving license. Some exchanges give approvals instantly. Others take up to a week to complete the KYC process. Video KYC is not mandatory for exchanges to on-board investors.
How do I transfer amounts to exchanges for investing?
To buy a crypto coin, you first need to transfer money (Rupees) to a wallet that belongs to your exchange. Then, you can buy a coin. You can use internet banking facility (IMPS, RTGS, or NEFT) or debit cards for transferring sums. Your wallet gets credited once you submit the transaction reference number.
Whenever you sell your crypto, you can use the same routes to transfer money back to your bank account. There are reports of some leading banks discouraging investments in cryptocurrency by not allowing deposits and withdrawals through crypto exchanges for their customers. But those appear to be sporadic instances.
“We are not going hard on our bank customers, as is being reported, for deposits and withdrawals from the exchange. We are just cutting support to the exchanges and it doesn’t have much impact on bank customers,” says a retail banker requesting anonymity.
You can select payment gateways such as Billdesk and Razorpay, and complete the transfer to your account with the exchange. However, you have to bear 1-2 percent additional charges for transferring the amount to exchanges through a payment gateway.
Also read: Are cryptocurrencies short-term speculative bets or long-term investments?
Should I transfer the investment amount in cryptocurrency to my external wallet or retain it with the exchange?
Some experts recommend that you should maintain a crypto wallet outside your exchange. For any reason, if your exchange shuts down, your money is safe.
Shetty, however, recommends that it’s best to keep the wallet within your exchange. “No one can help you if you lose your password or secret key of the external wallet. If you take the crypto custody on your own, you cannot retrieve the lost secret key of your external wallet because it cannot be cracked,” says Shetty. He adds that you will lose access to your entire investment in cryptocurrencies. So, a trusted exchange to keep custody of cryptocurrency investment is recommended.
What are the trading or investment charges?
There are fees specified for trading in cryptos. Vauld charges a fee of 0.05 percent of the transaction value, whereas CoinDCX and WazirX levy a rate of 0.10 percent. Bitbns charges 0.25 percent for each transaction.
Do I need to do any research before investing in cryptocurrency?
Yes, of course. Apart from understanding the risk levels, you also need to decide which coin you wish to buy and why.
Also listen: Simply Save podcast: How much should you invest in cryptocurrencies?
“Stay away from opinion pieces on cryptocurrencies based on market sentiment because that would create irrational excitement about the asset,” says Bathija.