It wasn’t too long ago that Budget 2022’s treatment of cryptocurrencies left the industry in a deep dent. Anticipating the significant consequences of the tax decision on virtual assets, more than half of interested investors believed that imposing such high taxes would drive crypto businesses into the arms of other crypto-friendly nations, such as Dubai, Singapore and even Thailand. Many even feared that the heavy tax on the sector could cause it to operate covertly and relocate any future Layer 2 creative products to other countries.

I would be wrong to say that those fears have been allayed since February 1, when Nirmala Sitharaman, India’s finance minister, first proposed a flat 30 percent tax rate on income from virtual assets with no exclusions or deductions. The debate is still alive. With investors divided, there is still a lot of confusion in the market regarding whether or not to participate in the new age asset class, especially considering the excessive volatility of crypto tokens.

I believe that even with the increase in the tax rate, the crypto market will expand.

Crypto tax is the first step for crypto regulation

When the involvement of people who had been sidelined due to the 2018 delegitimization eventually comes to the fore, clarity in the tax process will prove to be an important first regulatory step toward broader adoption.

Although taxes are high, there is now more transparency in cryptocurrency trading than ever before. This transparency will undoubtedly help investors in their quantitative decision-making process, giving much-needed structure and stability to their crypto portfolios. That is to say, any positive action by the government at this time must be taken with the chin.

Additionally, investors can still benefit from holding crypto in the wake of budget statements. As the budget statement has elevated virtual assets to a new level of importance in the eyes of investors, more investors are looking to diversify. For retail investors, it is an excellent opportunity to start your Bitcoin journey. It turns out, then, that the big question is not whether to invest or not, but how to invest.

Not if, but how to invest

A crypto investment strategy is what should be top of mind for investors right now.

Aside from the fact that investing is a deeply personal choice, and each investor has a unique investment philosophy, time horizon, and risk tolerance, it appears that investors do not require substantial portfolio rebalancing after the implementation of the tax. Existing investors, for now, can continue with their previous approach, while it is safer for new investors to invest in ‘blue-chip’ cryptocurrencies, especially given the recent fall of LUNA de Terra.

As long as investors focus on stable themes and strong sectors, their long-term strategy does not need to be changed at all. Of course, this is not good news for day traders looking to profit from very short-term price movements, but a measured or SIP-modeled investment strategy is the best bet for investors right now. When it comes to protecting investors against treacherous market volatility, a small amount invested over time works best.

So yes, cryptocurrencies can be complicated and taxes are high, but higher returns are still possible, as long as investors look long term, do research and focus on future trends more than they could and should.

(Andesh Bhatti is an angel investor and founder of Collectcent-Supply Side Advertising Platform. Opinions are personal.)

Posted On: Sunday, May 22, 2022, 9:51 PM IST