crypto investment: With tax at 30%, is it still logical to invest in cryptocurrencies?

Synopsis

​Finance Minister Nirmala Sitharaman announced the tax on gains arising from virtual assets at a flat rate of 30 per cent without any exemptions or deductions

Exchanges believe that the budget announcement has elevated the status of the virtual assets classBudget 2022: HighlightsBudget 2022: HighlightsWith an announcement of flat taxation of 30 per cent on virtual assets, crypto investors are wondering if they should put their money in the new-age asset class.

Finance Minister Nirmala Sitharaman announced the tax on gains arising from virtual assets at a flat rate of 30 per cent without any exemptions or deductions.

The high rate of taxation and high volatility in crypto tokens has raised a few logical questions in the investor community.
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On the contrary, crypto platforms and experts believe with the clarity in the taxations, the participation from those who have been sitting on the sidelines is likely to increase, despite the higher tax rate.

Nischal Shetty, CEO, WazirX said that the added visibility of taxation should definitely help investors deliberate better in terms of how much they should allocate to virtual assets as an investment product.

“For new investors, the taxation statements give adequate clarity and should boost investments from users who were awaiting such statements from the government before investing in virtual asset classes,” said Shetty of WazirX.

Budget announcements are the first step forward towards a full regulatory framework reckoning the same, Avinash Shekhar, CEO, ZebPay, believes that it is still viable for investors to hold crypto.

Exchanges believe that the budget announcement has elevated the status of the virtual assets class and expects the charm to continue among the investors.

Edul Patel, Co-founder and CEO, Mudrex said that investing in cryptocurrency helps in diversification. This is a great time for Indian investors to get on the cryptocurrency journey. “Retail players awaiting a regulatory nod would definitely be interested.”

Investors and crypto HODlers are wondering if they should rejig their investment strategy or persist with the new as the new guidelines and tax regulations are out.

Investments are a very personal decision and the strategy in terms of amount of investment, tenure and risk appetite varies from person to person.

Experts say that existing investors do not need any major rejig after the budget announcement. “Investors should simply carry on with their existing strategy until further clarifications come out from the budget announcements, ” Patel added.

For the new investors, experts said that new crypto investors should initially focus and stick to blue chip names of the crypto market. Investing around strong themes and sectors could be a great way to begin the investment journey.

“Investors holding crypto for the long-term need not change their strategy at all,” said Shekhar. However, tax levied on digital asset transfer is likely to discourage day traders from working in crypto, he added.

Crypto players suggest that investors should use the SIP way or invest in a staggered manner in the crypto assets. Investing a small amount periodically allows investors to maximize their profits, with protection from the market volatility.

“Invest for the long term, and be conscious of doing research before you do. Follow the rupee cost averaging approach to reduce your exposure,” said Shekhar of Zebpay. “High tax on digital asset transfer is likely to discourage day traders.”

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Updated: 02/02/2022 — 15:00