Money managers still unsure about endorsing cryptocurrencies

Some Indian money managers are skeptical about recommending cryptocurrencies as an investment option to their clients.

This comes even as India took its first real step towards adopting cryptocurrencies by deciding to launch a digital rupee, using blockchain and other technologies, and unveiling a plan to tax income from transfer of virtual assets at 30% in the upcoming financial year.

“There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime,” Finance Minister Nirmala Sitharaman said in her latest budget speech.

Sitharaman's comments effectively removed uncertainties about the legality of such transactions, but did little to convince money managers to change the way they look at crypto.

“Just because it has been taxed does not make it a mainstream invest option”, said Delhi-based Kshitiz Mahajan, the co-founder of Complete Circle Capital Private Limited, adding that the fundamentals of cryptocurrencies were not strong enough for him to even consider it as an asset class. “I would advise people to only put money they can afford to lose, that too only to learn and understand what kind of an asset it is. It is just casino-play.”

Money managers told DH the movement in cryptocurrency markets was not logical and its value was based on perception, making it a risky asset. That is one of the reasons preventing them from recommending crypto to their clients.

Suresh Sadagopan, a Mumbai-based certified financial planner, worried more about the security concerns and environment issues tied to crypto transactions.

“A lot of clients have asked us about crypto being part of their portfolio. Our questions are why is there an artificial cap on how much crypto can be mined, and also that it uses so much energy. It is against the push to invest in ESG (environmental, social, and governance),” Sadagopan said, referring to the trend of investors increasingly looking at these non-financial factors to evaluate risks and growth opportunities.

“Apart from that, we need to understand that security is an issue. There have been cases where people have lost all their value put in crypto because they couldn’t access their accounts or because the government banned it. Why take the risk?,” he asked.

Money managers said while India has decided to start taxing the transfer of virtual assets at 30% in 2022-2023, crypto use is still not regulated by the government.

Some others also talked about how people should think carefully whether it was a worthy investment as income from digital assets will be taxed at the highest tax band in the country.