On March 20, 2024, Bengaluru hosted ‘ETMarkets Emerging Investment Opportunities,’ in partnership with Mudrex. The on-ground event, aimed at empowering new and seasoned investors seeking investment opportunities beyond equities, facilitated connections between various financial professionals and market leaders. Attendees, including investment advisors, mutual fund advisors, equity traders, wealth advisors, and distributors of wealth products, gained actionable insights into diversification, risk management, cryptocurrency prospects, and Gold ETFs from wealth experts.
Showcasing strategies and a wealth of ideas, information, and insights, the ‘ETMarkets Emerging Investment Opportunities’ aligns itself with the vision of India’s Amrit Kaal; an era holding the promise of significant growth, attracting 14 crore new investors with vast opportunities beyond traditional equities. This event offers a comprehensive platform to explore diverse asset classes like cryptocurrencies and real estate, empowering seasoned and new investors with essential knowledge and tools to navigate the evolving financial landscape.
“This entire asset class moves rapidly, with constant changes occurring not only within the country and around the world but also in terms of technology and investor behaviour,” said Patel, the chief of Mudrex, a registered virtual asset service provider in India as well as the EU that has been in the cryptocurrency space for the last six-and-a-half years, kickstarting his presentation.
The Bitcoin question and beyond: Regulation and taxation in the crypto universe
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“Is Bitcoin legal in India? It’s a fundamental question, one my mom often poses every other month,” said Patel, sharing an anecdote and yet tapping into the most urgent question looming on every crypto investor’s mind today. However, before delving into the Bitcoin space, Patel referred to the India Strategy Paper by DTIO that highlights blockchain’s potential for seamless transactions, easing business operations by reducing bureaucracy, adding that NITI Aayog has long recognised blockchain’s integration into daily activities. Presently, India leads the world in “grassroots crypto adoption”—metrics that look beyond raw transaction volumes—metrics that look beyond raw transaction volumes, according to a Chainalysis 2023 Global Crypto Adoption Index.Next, Patel discussed the regulatory landscape. “Crypto isn’t included in the Prevention of Money Laundering Act (PMLA) framework, but financial institutions, including crypto companies, must adhere to similar compliance standards to prevent money laundering … India’s leadership in the G20 presidency aims to foster consensus on crypto regulations globally,” said Patel.Moreover, blockchain’s adoption in daily life is evident, from Digi Yatra to voter registries, underscoring regulatory clarity, Patel explained. “Despite lacking a regulator, registration entities and transaction monitoring ensure compliance,” he added.
Moving to taxation, Patel emphasised that India has a clear tax framework for crypto. Taxation, introduced two years ago, imposes a 30% tax on crypto profits, with a 1% levy on transactions. Importantly, profits from digital assets can offset losses.
“Bitcoin transactions are entirely legal and widely accepted in India. With growing adoption and clear regulations, Bitcoin’s pace of expansion is remarkable,” stressed Patel.
Is Bitcoin a viable instrument for portfolio diversification?
“The second question is, ‘Should I even buy bitcoin? If so, how much should I buy? Should it be a part of my portfolio?’ We felt it’s worthwhile to spend some time delving deeper and analysing Bitcoin’s performance over the past few years. Let’s explore that and use Bitcoin and crypto somewhat interchangeably, as Bitcoin constitutes a vast majority of the crypto market,” shared Patel.
“Firstly, let’s discuss the concept of seeking a high-risk, high-reward asset. Risk, as commonly understood, is often measured by volatility. Notably, Bitcoin’s volatility has consistently decreased over time, now comparable to many small-cap stocks. This reduction in risk is coupled with potentially high rewards. An important metric to consider here is the Sharpe ratio, which measures the annualised risk-reward of an asset class. When compared to traditional assets like the S&P 500, Bitcoin demonstrates a better risk-reward profile, albeit with inherent high-risk characteristics.
Furthermore, Bitcoin presents an interesting correlation dynamic with gold and equities. Unlike traditional assets, Bitcoin exhibits low correlation with equities, akin to gold. This lack of correlation is a significant advantage for portfolio managers seeking diversification, as it helps mitigate overall portfolio risk while potentially enhancing returns, Patel explained.
Considering these factors, Patel recommended envisioning incorporating Bitcoin into an investment portfolio. “By replacing a portion of traditional assets with Bitcoin, such as debt, we can assess the impact on portfolio returns and risk. Our analysis reveals that including Bitcoin in the portfolio enhances both returns and risk-reward profile. As a result, it’s recommended that investors allocate around 2% to 5% of their portfolio to Bitcoin, optimising diversification benefits,” the Mudrex Co-founder and CEO explained.
“Bitcoin has emerged as a new asset class suitable for portfolio diversification. Incorporating Bitcoin into your investment strategy, ideally allocating a modest percentage of your portfolio, offers the potential for enhanced risk-adjusted returns. This trend is increasingly evident with growing institutional participation in Bitcoin and upcoming Bitcoin spot ETFs,” highlighted Patel ahead of the Bitcoin halving event.