Numerus Institutional investors and wealth managers are now looking towards managing Crypto investments as Bitcoin, Etherium and others are gaining mainstream attention.
In crypto investment, institutional managers are now came up with three new methods-
1. SIP in crypto
2. Lending/borrowing of crypto assets
3. Fixed Deposit in crypto
SIP in Cryptocurrencies like Mutual funds
In view of high volatility in crypto market and regulation restriction in many countries investing in Crypto currencies is highly requested for only that money that you can afford to loose. Because it is a high risk high profit investment.
To mitigate the risk of losing money Big investment
institution recommend to invest thru SIP (Systematic Investment Plan).
Currently many Exchanges offer SIP in crypto currencies. A person can do SIP
independently also by buying crypto for a fixed amount daily or monthly basis
and storing it in his own preferred wallet or in hardware wallet.
Exchanges which offer SIP
1. Bitdroplet powered by Bitbns
These exchanges suggests that according to previous
results 5-year investment in bitcoin has provided 1251% absolute return
so an SIP started for $100 per month for a 5-year term will turn to be
$4850 in value.
Above-mentioned platforms allow you to start SIPs in cryptocurrencies with just $10 per instalment. Also you can choose SIP plan on week basis or month basis because the prices are fluctuating in a month so fast.
Many financial experts believe that after considering all the risks and volatility, SIP may be a preferred route for building wealth through cryptocurrencies for first-time investors.
The key advantage of a systematic investment plan (SIP) is that the problem
of timing the market is irrelevant. This makes SIP an effective strategy in the
face of market volatility.
Lending/Borrowing of crypto assets - "Crypto Loan"
One of the benefits of investing in cryptocurrency is the ability to use your crypto holdings as collateral for a loan, even if your holdings are relatively small. In traditional markets, a similar practice is called securities-based lending like loan against property or gold.
This service allows users to obtain cash by depositing part or full of their crypto assets to the exchanges as security, without the need to sell them. The amount of cash received depends on the current value of the asset and the lending rate.
Individuals may choose to take out a crypto loan
instead of selling because they expect their crypto asset’s value to increase
or because they want to hold the asset long enough to avoid short-term capital
Categories of crypto loan-
Custodial crypto loans (CEFI)
A central entity takes custody of the collateral. In this kind of loan, a trader cannot access his collateralized assets. The lender controls the assets private keys.
In CEFI loans a centralized entity imposed its terms and conditions on lending money. Around 80 percent of crypto loans are currently custodial.
Non-custodial crypto loans (DEFI)
Decentralized finance loans are non-custodial. Rather
than depending on a central organization to enforce the terms of the loan, they
depend on smart contracts. In DEFI loans, the trader retains control of their
assets, unless they default on the loan.
Why crypto Loan is better than traditional loan?
Compared to the process of applying for a traditional loan, applying for a crypto loan requires relatively little. Credit checks (Cibil Score) are typically not required.
The loan-to-value (LTV) ratio is the ratio between the
amount of the loan and the value of the collateral. If you put up $1000 worth
of crypto as collateral and receive a $600 loan, your loan’s LTV ratio is 60
percent. Because crypto markets are volatile, LTV ratios on crypto loans are
Crypto loan interest rate
loans are charged around 3% APR (Annual percentage rate) to 12% APR. If you use
your loan for investment or business purposes, you may be able to write off
these interest fees on your taxes. Some platforms offers lending for 7 to 90
days period also. Unicash charged 0.04% interest on daily basis for small time
Platforms which offer crypto lending
1. Oasis Borrow
2. Compound Finance
3. Celsius Network
10. Unchained Capital
BItbns offered different type of lending scenario like the user can decide whatever interest rate he wants and it is upto the borrower whether they want to take it or not. So, the market decides the interest rates, not the exchange. The exchange only ensures that the trade is fulfilled.
Also, the borrower uses the currency to trade inside the platform only. “If exchange feel that position is going wrong, they automatically liquidate the trade and ensure that the lender gets back the principal and interest rate promised.
Fixed deposit in Crypto
4 times return over traditional Bank FD’s !! This kind of advertisement lure you towards crypto FD’s.
Yes, that is true that you can earn interest of around 18-20 % on crypto FD. But it depends on which cryptocurrency you have.
The Exchanges are now offering FD and RD just like traditional banks to crypto holders. crypto lending is “risk-free” as exchanges underwrite the transactions and ensure that the lender is paid back the principal along with interest. Only platform risk is likely to affect crypto lenders in case the exchange goes bankrupt. But that can happen to any traditional bank also like Yes Bank in India.
How does FD in crypto work?
You can choose FD plan either on an open term, or a fixed term:
· Under an open term deposit, you will be paid a return as applicable for the day.
· These returns will be deposited into your trading wallet daily.
· You can return your crypto back to your trading wallet at any time. The amount you deposit will be returned immediately.
· As a day trader, you can take the advantage of open term deposit to earn additional returns without locking-in your crypto.
· Under the fixed term deposit, you can lend your crypto for 7-day, 30-day, 60 day and 90-day periods. The rate of return will vary depending on the period you opt for.
· The returns earned, along with the principal amount will be deposited into your trading wallet at the end of the term.
· You can withdraw these coins at any time before expiry. However, a penalty will be levied on the returns.
Platforms which offer crypto FD
1. Cashaa – UK based cryptocurrency offering saving, lending, FD and trading services. FD services in crypto which are just like bank FDs and RDs, where retail investors invest to secure their future goals. It is offering interest rate from 4 per cent per annum to 9.67 per cent per annum.
2. ZebPay – Zebpay, one of the earliest entrants in crypto trading allows open term and fixed term FD’s on its platforms and depositors can choose from either of the two. It offers 3 to 12 % per annum interest rate on FD.
3. Bitbns – On Bitbns, you can lend over 50 digital assets. On an asset like USDT, the annualized interest can be in the range of 18-20 % which is four to five times as compared to a conventional FD. But for other assets it is around 3-14 %.
4. CoinDCX – CoinDCX said it allows traders to earn up to 12.42% annual interest on lending their Crypto-assets like Bitcoin, Ethereum, Ripple, Tether, USDC, and more.
Taxes on cryptocurrencies
Whether cryptocurrencies are unregulated and does not governed by single body or nation. Earning from cryptocurrencies is taxed in many countries.
Because of crypto markets exponential growth and its huge returns to investors or traders, many countries are now imposing Taxes on that earning.
Here is the list of countries where crypto earning is Taxed-
1. United Kingdom
UK treated Cryptocurrencies as capital assets. So capital gain taxes levied on crypto earnings. The capital gain taxes in UK is 20% for higher rate tax payers and 10% for basic rate tax payers.
2. United States
Same as UK, US consider crypto as property like gold. So 10 to 20 % tax have been imposed on crypto earnings based on Tax payers category.
In Canada cryptocurrencies are Taxed under capital gain Tax. But only 50% of gain is taking under consideration for Tax. And Tax rates are between 15 to 33% as per Tax payers slab.
Italy consider Cryptocurrencies under Fiat currencies, and Fiat currencies are taxed flat 26%.
From 1st Feb, 2022 Crypto earnings are Taxed @30% flat rate. Also 1% TDS is applicable on crypto transaction.
Germany consider crypto currencies as private money, and Tax on crypto is subjected to some conditions such as-
· If you hold your crypto for more than 1 year, No tax on it.
· If you make profit more than €600 within 1 year and spent it then it is Taxable.
· If you Stacked crypto for further income- it is Taxable no matter the time.
Tax slab is between 14 to 45% as per Tax payers income.
Crypto Tax rate in Russia is in between 13 to 15% as per Income slab.
Tax rate on cryptocurrencies is similar to capital gain Tax, which is 50% (applicable on more than 1-year hold).
In Netherlands, Crypto Tax is maximum 31% based on income.
10.Crypto Tax Free Countries-
New feature in Coinbase- Direct deposit of Paycheck
Cryptocurrency company Coinbase is launching Direct deposit of your Paycheck in the Coinbase account. This way, customers will be able to deposit a portion or full of their paycheck into Coinbase. Coinbase app users can find their current payroll company or employer and update paycheck allocation from there. The most extreme users will probably choose to deposit 100% of their paycheck into their Coinbase account.
Once the money hits your Coinbase account, you can just keep everything in USD or you can choose to convert everything to a cryptocurrency.
Over the short history, crypto-assets have generated the highest returns among all asset classes. But, is it sustainable? This is a question that came out from each investors. For some, it is a bubble while for some it is a revolutionary technology.
Before investment in crypto, investors should keep in mind the regulatory changes also according to their countries.