India has emerged as a global leader in crypto adoption for the second year in a row, according to a September 2024 report by Chainalysis. While activities like buying, selling, trading, and holding cryptocurrencies are legal in India, no cryptocurrency has been recognized as legal tender. In an interview with Gadgets360, Cashaa CEO Kumar Gaurav noted that crypto-based systematic investment plans (SIPs) could gain popularity in the coming years as young investors seek alternatives to traditional assets like stocks and bonds. Cashaa, a UK-based banking platform, also offers crypto-related services.

Cryptocurrencies are volatile and mostly unregulated virtual assets, susceptible to global micro and macroeconomic fluctuations. Speaking to Gadgets360, Cashaa CEO Kumar Gaurav emphasised that crypto investments should be considered a part of a diversified portfolio. He cautioned against relying solely on crypto for SIPs or retirement savings, as it could expose investors to significant financial risks.

In our chat, we attempted to discuss crypto SIPs and what the future could have in store for this savings option. Here are slightly edited and condensed excerpts from our chat:

Gadgets360: What is a crypto SIP and how does it differ from traditional SIPs in mutual funds or stocks?

Kumar Gaurav: A crypto SIP functions similarly to a traditional SIP, where investors regularly invest a fixed amount over time. Instead of investing in mutual funds or stocks, however, crypto SIPs allow you to invest in digital assets like Bitcoin, Ethereum, and other cryptocurrencies.

The primary difference lies in the underlying asset—cryptocurrencies are decentralised, highly volatile, and global — unlike mutual funds or stocks which are typically regulated, relatively stable, and country-specific.

Another difference is the potential for high growth and risk associated with the crypto market, as opposed to the more conservative growth seen in traditional investments.

Gadgets360: What are the benefits of investing in cryptocurrencies through a SIP model rather than a lump sum investment?

Kumar Gaurav: Making a lump sum investment in crypto assets comes bearing higher financial risks, given the unpredictability of crypto prices. Investing in cryptocurrencies via an SIP model, meanwhile, allows for rupee-cost averaging. This mitigates the risk of entering the market at a volatile time.

In a market as dynamic as crypto, where prices can fluctuate drastically within hours, a SIP helps spread the investment over time, lowering the risk of buying at a market peak. This investment strategy encourages the habit of consistent sustainable investing.

Gadgets360: How does the performance of crypto SIPs compare to traditional investment avenues in long-term?

Kumar Gaurav: While traditional SIPs in equity markets offer relatively stable and moderate returns, crypto SIPs have the potential for exponential growth. For instance, Bitcoin has delivered higher returns over a 10-year period than most traditional assets. These returns, however, come with extreme market fluctuations.

Over the long-term horizon, crypto SIPs may offer superior returns if the market matures, but they should be balanced with traditional investments to hedge against volatility.

Gadgets360: What are the major risks associated with Crypto SIPs, considering the volatility of the market?

Kumar Gaurav: The volatility of the crypto market is one of the biggest risks associated with crypto SIPs. Even with the cost-averaging benefit of a SIP, cryptocurrencies can experience large swings in price within short time frames. There’s also the regulatory uncertainty factor in many countries, including India, where the legal framework for cryptocurrencies is still evolving.

Other risks include security concerns like cyber-attacks and hacking of exchanges, as well as liquidity risks associated with smaller or less-established cryptocurrencies.

Investors looking to experiment with investing in virtual digital assets must do their due diligence in choosing well-established cryptos like Bitcoin or Ethereum while also selecting compliant and legal crypto platforms.

Gadgets360: Can you explain the step-by-step process for setting up a crypto SIP in India?

Kumar Gaurav: Firstly, you’d need to select a secure and trusted platform to start your SIP. After that, you’d need to complete your KYC and once approved, select the cryptocurrency of your preference. Bitcoin and Ethereum are generally safer bets due to their market dominance.

Once through, simply decide the investment amount and frequency of your SIP, i.e. weekly, bi-monthly, or monthly. You may link your bank details to automate recurring payments.

Gadgets360: What are the regulatory considerations when investing in crypto SIPs?

Kumar Gaurav: In India, the regulatory environment for cryptocurrencies is still in flux. While the government has not imposed an outright ban, there are restrictions on how cryptocurrencies can be transacted, particularly for speculative or investment purposes.

Investors need to be aware of regulatory updates, which could impact how Crypto SIPs are managed.

Currently, exchanges offering SIPs in India are expected to follow strict KYC and anti-money laundering (AML) protocols. It’s important to choose platforms that are compliant with Indian regulations, as future changes may impose more stringent rules or taxes on crypto investments.

Gadgets360: What are the tax implications for investing in cryptocurrencies via SIPs in India?

Kumar Gaurav: In India, cryptocurrencies are classified as virtual digital assets (VDAs), and any gains from them are taxed at 30 percent. Both short-term and long-term tax rate is at 30 percent. Additionally, a one percent TDS (Tax Deducted at Source) is also levied on crypto transactions above a certain threshold. Keeping accurate records of all transactions is crucial for calculating your tax liabilities.

As per Gaurav, Given the high potential for long-term appreciation, crypto SIPs could indeed become part of retirement or long-term savings plans, especially as regulatory frameworks become clearer and platforms offer more insured, secure, and compliant products. In 2022, a survey from the US asset manager Charles Schwab had said that around 45 percent millennials and 46 percent of the Gen Z population are looking at cryptocurrencies as a retirement plan in the US.

Cryptocurrency is an unregulated digital currency, not a legal tender and subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, trading advice or any other advice or recommendation of any sort offered or endorsed by NDTV. NDTV shall not be responsible for any loss arising from any investment based on any perceived recommendation, forecast or any other information contained in the article.