Should you invest in cryptos to diversify your portfolio this Diwali

As Diwali approaches, investors start brainstorming how much to spend and where to invest during the auspicious occasion. Diwali is a time when investors gear up to build wealth by investing in a wide array of investment avenues as part of their religious belief to bring home Goddess Lakshmi, the goddess of wealth and prosperity. Traditionally, Indians buy precious metals like gold and jewelleries during this auspicious time. However, with changing times new generations of investors are parking their hard-earned money in other assets such as equities and cryptocurrencies, thanks to lucrative returns and easy investments.  

However, it is always advised to not invest entire capital in a single portfolio. In a bid to mitigate the risk, it is better to diversify the portfolio by investing in different asset classes such as equity, gold, bank deposits, cryptocurrencies, bonds, and government schemes to earn higher returns at a cost of low risk.

Is cryptocurrency a good investment?

Cryptocurrency as an asset class is currently considered a high-risk and high-reward investment avenue but some crypto-based investments offer guaranteed annual percentage yield (APY) and fixed returns like bank FD.

According to Tarusha Mittal, COO, and cofounder, UniFarm, crypto staking is one such option where you lock your crypto assets to participate in blockchain operations and you earn more cryptocurrency as a reward. “In crypto staking, you can earn multiple crypto assets by locking one crypto asset. The APY yields can be anywhere between 35%-400% but it is very important to choose the correct platform as some platforms do not offer the security of the principal invested. UniFarm as a platform empowers users to earn diversified returns from a single token with complete security of the principal invested,” she said.

Mahin Gupta, Founder of Liminal, a digital wallet infrastructure platform, cited an example of Bitcoin exchange-traded fund (ETFs), which tracks the value of bitcoin, to demonstrate if crypto is a good investment. Since the Bitcoin Strategy ETF (BITO) launched in October 2021, it became one of the most heavily traded ETFs in market history, attracting around $1 billion in assets within a few days of launch, he said.

Is it a good time to buy the dip?

According to industry experts, buying the dip or not is a personal choice that should ideally depend upon one's research. However, most seasoned investors always take advantage of the price dip and increase their crypto holdings as per their risk appetite.

The overall crypto market has witnessed sharp sell-off in the last one year, with Bitcoin, the world's largest cryptocurrency, plunging by more than 70% from all-time high over $68,000 in November last year to current levels of $19,000 mark. Similarly, Ethereum, the world's second biggest cryptocurrency, is hovering around the $1,300 mark after notching a record high of $4,800 levels in November 2021.

“Buying the dip is subject to the risk buying power of the investor. If an individual has a good surplus amount for investment then it is advisable to buy the dip with a horizon of 3-5 years as long-term investors have higher chances of being profitable. The dip in the prices should be carefully evaluated and crypto assets with strong fundamentals should be considered for investments,” said Tarusha Mittal.

According to Mahin Gupta, buying the dip is one of the main strategies to create a growth-oriented portfolio by betting on the bright future of the asset class. But, one should always study the broader economic factors before making any significant investment decision.

“The price movement is also highly impacted by macroeconomic conditions; for example, on 13th October 2022, US CPI data for September was released, resulting in price movement. Similarly, in the next two to three weeks, PBoC & FED will also make some announcements on the revision of interest rates. All these factors combined impact price,” Gupta added.

Investment recommendation for Diwali 2022

Investors traditionally invest in gold and silver during the festive season in India. However, millennials invest 25% of their portfolios in stocks and 16% in alternative investments like private equity, commodities, real estate, and even art. Cryptocurrency is also popular among these millennials, accounting for 15-20% of their portfolios.

“Millennials strongly believe that digital assets offer an intelligent diversification to the portfolio. Young investors believe that the most significant growth potential exists in the "digital asset space", which includes investment cryptocurrency (29%), fractional ownership (17%), P2P lending (12%), and US equity investment (9%), followed by in-game digital assets, NFTs, etc,” said Gupta.

According to Tarusha Mittal, investors are moving from sluggish traditional assets to technology-backed digital assets to achieve their financial goals. “Digital assets offer high returns and have emerged as the first choice of investors to prevent wealth corrosion from high inflation. Popular digital assets like Bitcoin and Ether are highly resilient and have managed to outperform traditional assets like gold and stocks in these turbulent times.”

“Digital assets also offer a smart store value to prevent the depletion of purchasing power of fiat currencies. Investors should go for coins with the right fundamentals, a good team. Do your due diligence, it is prudent to keep your portfolio diversified,” Mittal added.

Investors should do in-depth research about the fundamentals of crypto assets they are planning to invest. Any investment based on speculative news and unexpectedly high returns should be strictly avoided.

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.