Decrypting crypto: Is it the right time to invest in Bitcoin?

Atul Chatur, co-founder, Antilles Cryptocurrency Ecosystem gives his views on investing in crypto.

Cryptocurrency enthusiasts have faced a rather rough week, with Bitcoin, Ethereum, and other cryptocurrencies dropping dramatically in value mid-week but regaining some ground towards the end of the week. Those who had already invested in cryptocurrency chose a strategy to HODL – hold on for dear life – while others chose to “buy the dips.” Bitcoin’s volatility is not for the faint of heart. From a peak of $64,829 a few weeks ago to a low of $30,201 this week, before climbing back to cross $41,000, the blockchain-based virtual currency has had a wild ride. However, that’s something the swing isn’t something that bothers those who seriously track the market.

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Financial Express Online spoke to Atul Chatur, co-founder of Antilles Cryptocurrency Ecosystem (ACE-X), an expert in cryptocurrencies, about the right strategy to invest in the cryptocurrency market, as part of our series on decrypting cryptocurrencies.

FE Online: What do you read into the way Bitcoin has been behaving this week? Could you still call it a store of value? 

Atul Chatur: I would want to start my insights based on a track record. If you look at the historic returns of Bitcoin and then look at a shorter timeframe, in the last year 12 years, from 2009 till date, Bitcoin has given over 200% CAGR. So that’s an annual growth rate of 200% every year. That’s from a long-term perspective. If you look at the short-term, from last March, compared to today, it’s still at a $40k price which is about 8x. There is nothing drastically wrong with it. I don’t think we are into a bear market yet. We are still in a bull market. Based on my own technical analysis, plus what I am seeing in the investment world as well, I think I think we are still in a bull market overall, which will continue for some time. Also, it’s very different from the last cycle where Bitcoin was always a retail phenomenon. In this cycle, institutions are involved. The moment institutions see a big opportunity in a dip like this, I mean, it’s almost 50%. If Bitcoin sort of rebounds from these levels, you’re looking at at least a 50% return even from here. So if you bought the dip, if you bought in at about $31,000 or $32,000, and we get back to about $65,000, that’s like 100% in a week or two or three, right? These kinds of things have happened in the last cycle as well. If you look at the chart for the last cycle, they were about two 40% drops and about four 30 percent dips. So, crypto is volatile, that’s a given. I’m not too worried about this dip.

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FE Online: Is this a good time for those who haven’t gotten into crypto or are sitting on the fence to actually take the plunge and get into crypto now?

Atul Chatur: If you have a long-term view, don’t be worried. By long term, I mean a five-year view. If you had bought Bitcoin five years back as I got in, in 2017. It’s not exactly five, but four years, I got in at $3,000. Now, I am sitting on easily a 20x rate of return, if I look at $60k and I have sold at about $55k. So, if you’re looking at something like that, I mean, there’s a clear track record for you. If you get in at these levels, and in about five years, you’re probably be sitting on at least 5x, if not 10x  returns. I’m basing this both on the historical track record and also in terms of the well-known supply-demand economics. If I look at the supply, it’s capped, it’s reducing because 18.4 million Bitcoins have already been mined. There’s just about 2.6 million Bitcoin that will be mined in the next 120 years. There is going to be a massive supply crunch. And then there is the fact that Bitcoin is now really freely available for anyone to buy. It’s on the Square app. It’s on Venmo. It’s on PayPal. Visa has integrated into Ethereum and on the blockchain as well. There are just so many opportunities for people to buy worldwide. Retail is in, obviously, in a big way in this cycle. But so are institutions, which is where I think we’ll be lucky to see Bitcoin at these levels in a month or two. Right now, it is looking a bit weak. I think the next one or two weeks will be crucial, but after that, I think it will bounce back. In my view, should one get in now? I would think so. But don’t get in with your full money. I would deploy about 25% and see how it goes. If you’ve got Rs 100 to invest, put in Rs 25 right now, and see how it goes because some weakness might persist over the next couple of weeks.

FE Online: It’s interesting that you mentioned putting in just 25% of the money right now. In your view, what should one’s investment portfolio look like? If I had that Rs 100 and I put 25% into crypto what should I be looking at – tokens, Bitcoin, or Ethereum? And what should the rest of my portfolio consist of if I wanted a good investment portfolio?

Atul Chatur: When I said 25%, I assumed that you are going to put all of that money into crypto. But if you have Rs 100 rupees, I would say your allocation should be only 10% into crypto especially for people who are looking at this as a pure investment, as a pure asset class. If you are invested in equities, bonds, gold and real estate, and you want to look at crypto, it is a risky and volatile asset class. I don’t think the prices will dip that much in this cycle because of retail frenzy and a lot of retail buying options. Coinbase, for example, had an IPO in the US. There are plenty of crypto exchanges out there and large institutions. In spite of Elon Musk saying whatever he did, Tesla has not sold any of its Bitcoin. It did sell only 10%. But that was just to test out the market. So it doesn’t matter what people say they are not actually selling in a big way. I mean, whoever is selling is mostly retail individuals. These are people who got in at $60k, $55k or $50k, who are getting worried by this.

If you’re looking at portfolio diversification, and if you’re looking at getting exposure to an emerging technology-based asset class – just look at Google or Facebook about 15 years back. I believe we have reached that stage because Bitcoin is large enough. Ethereum is large enough. If you had asked me about a year back, I would have said, take about 2% to 3% exposure. Right now, I would say 10%. This is just what I would do. In terms of the coins that I like and the ones that I have done research on. Upfront, I want to say this is not financial advice. I want to be very clear on that.

Out of Rs 100 that I would invest in crypto, I would say 25% allocation to Bitcoin, 25% to Ethereum, and then the remaining 50% I would allocate to a bunch of Altcoins. Now Altcoins are probably even more volatile, but there are a few that are on my radar, and that I have invested in personally as well. Matic is one. Three of the founders are Indian and one is now based out of Europe. It’s essentially an Ethereum scaling solution. They’ve got a few other services or offerings up their sleeve as well. It’s doing really well and it has gone up about 10x in the last month or so. Another one I like is Helium. Helium is one of the coins that has got a fundamental underlying business model. They are growing very fast as well. Another one is Rune, which is also a zero to one project. I would say among Altcoins those are the three leading ones. There’s a bunch of smaller ones, but those are quite risky in the sense that they are really small. I am dabbling in them myself, but I don’t have large positions.

FE Online: A disclaimer, our readers should also do their own research before getting into cryptocurrency. This is a risky market and you’re doing so at your own risk. That said, is crypto like a proxy for equities? We are seeing a lot of firms coming up with their own tokens or their own coins. Is this kind of an unregulated proxy for equities, in your view?

Atul Chatur: There are various kinds of coins or tokens. I’ll just go over a couple of them. Let’s look at the top five coins. So if you look at Bitcoin, it is a token. If it’s used purely for payments, it’s got, limited use cases because it’s basically a store of value, and you can use it for payments as well. But the payment use case is limited because it’s very volatile. In terms of price, if I look at Ethereum, which is number two today, that’s got many use cases. It’s also used as, apart from the store of value, it’s used as a capital asset as well. It’s also used as a “gas fee” mechanism. If you build on top of the Ethereum network, it actually has its own programming language called Solidity. So if you build on top of the Ethereum network, for using that network, you need to pay the gas fees or the fees, if you may, in the Ethereum token. It’s a multipurpose token as compared to what Bitcoin is.

Then I go beyond that to a token called BNB, which is the Binance coin, which is like a discount token. If you went to the Binance exchange, and you trade, let’s say Bitcoin or Ethereum or whatever else using the BNB token, you get a certain discount, because you are using that token, and underlying that token is also the cash flows of Binance. For example, Binance uses 20% of its profits to burn the BNB tokens. That’s like a deflationary policy. It increases the price of the BNB token.

Helium, for example, is another one, which is quite different. It’s more of a reward token and you can mine with that as well. There are 100 different kinds of tokens. Are these equity tokens? No, they aren’t. Equity shares give you ownership in the company. Equity shares are valued on the basis of price-earnings multiple for example. You are comfortable buying an equity share. That’s not true for tokens. Tokens are not used that way. They do not give you any ownership in the underlying company.

There are certain tokens called securities tokens. It’s like an STO – securities token offering. But there are very few of those. STOs have been looked at to see if they could help raise capital globally, but there is no global capital raising jurisdiction as such. Even if it was a global company – Amazon is in the US and Infosys is in India. You cannot have a global company listed that way. There are certain STOs that are equivalent to an equity share.

FE Online: For investors getting into crypto, there are clearly risks here. But do you think, if we had regulation in place already, there would have seen such a kind of volatility in the crypto market?

Atul Chatur:  If you look at the basic definition of crypto or Bitcoin, at a basic level, it’s essentially electronic, peer-to-peer cash without an intermediary. This basically means I can send cash or a Bitcoin from where I’m sitting to wherever you’re sitting, whether it’s in Bandra or whether it’s in New York, in like two minutes, and no one is involved in between. I don’t need to take anyone’s permission. Now, for an asset that is of this nature, where it is basically electronic peer-to-peer cash without an intermediary, how do you regulate such a market? The only way to regulate this is when I use my INR, my rupees, to buy Bitcoin. For example, one can regulate it by saying “you can’t buy more than Rs 10 lakh worth of Bitcoin”. I mean, that’s one sort of regulation that I see.  Since I don’t need permission to trade assets I mean how do you stop it? It’s not like a stock market where you can put a 10% circuit limit or a 20% circuit limit, because there’s no intermediary in between to actually do that. So, volatility is actually a feature of the cryptocurrency market, you have to realize it’s not a bug. If you’re not comfortable with this concept of electronic peer-to-peer trading without an intermediary in a permissionless manner, then regulations are not going to save you. If you don’t like the feature, don’t get involved in this market. It can crash in a single day by 50%. They can go up in a single day by 500%. And there’s no one out there to say absolutely nothing shouldn’t happen. That’s something that you have to realize.

(The suggestions and recommendations around cryptocurrencies in this post are the opinion of the respective commentators. Financial Express Online does not bear any responsibility for their advice or views. Please consult your financial advisor before dealing with or investing in cryptocurrencies.)