Shadow investing - how reliable is it?
If your tyre went bust on the roadside, and you had all the material to repair your tyre, but no idea about how to do it, what would you do?
02 Jun, 2021
8 min read
1821 Views
The democratization of the internet and access to world news has been a game-changer in how people choose to invest their money.
Introduction –
In India, physical forms of gold have traditionally been sought-after forms of investment with households collectively owning the biggest private stock of gold amounting to 25,000 tonnes. However, the downside to this form of investment is that it doesn’t generate new wealth and it costs money to keep it safe. The Indian stock markets are popular places to invest and trade today and the ability to trade online has added to the ease with which investors and traders alike operate these markets. It is important to note however, these aren’t the only ways in which individuals can invest or trade their funds.
What is Cryptocurrency?
Advances made in the world of technology combined with increased access to both smart devices and knowledge have allowed cryptocurrency to gain in popularity today. Cryptocurrency can be understood to be virtual currency accessible via digital platforms and which is protected by cryptography. This layer of security makes this currency almost impossible to forge or double spend. Key to their genetic make-up is that a number of cryptocurrencies are designed using blockchain technology which allows for information to be recorded and distributed without allowing for any edits to be made. Simply put, this technology makes use of varied forms of encryption to control the units of money generated. Encryption techniques are additionally used to verify any fund transfers that take place. Blockchain ultimately helps ensure that each transaction is carried out with integrity. What makes cryptocurrencies stand out is the fact that they are for the most part not issued by a central authority. The relevance of this lies in the fact that these forms of currency are then technically immune to any form of manipulation or intervention by the government.
Some of the cryptocurrencies currently dominating the market include but aren’t limited to Ethereum (ETH), Litecoin (LTC), Polkadot (DOT), and Bitcoin (BCH).
Why is Cryptocurrency so Volatile?
Cryptocurrencies have from day one been known for their volatile market conditions. Investors have been known to profit enormously from the upswings as well as having lost big when the market has faced downturns. The reasons for the volatile nature of cryptocurrency markets have been examined below.
The Power of Speculation – Cryptocurrency’s volatility is largely associated with the speculative nature of investors and traders some of whom are enticed by the possibility of making big wins based on guesses at the upturns of the market. Large Scale speculative bets increase the volatility of an already volatile market.
Knowledge Base of Traders – Unlike the stock market and real estate investments, vast swathes of prior knowledge aren’t required in order to make an investment in the cryptocurrency domain. Investors need only possess access to the internet and a small amount of money to spare. This very fact makes this market so appealing to traders with minimal or no experience. Those involved in institutionalized trading markets are more wary and cautious of the cryptocurrency market and view it as a risk to invest in. The fact that the average investor within this domain is therefore less fluent and well versed with market conditions takes a toll on the cryptocurrency markets. They are more susceptible to hype, uncertainty, doubt, fear, and blatant manipulation. Average traders within this domain are less likely to retain a sense of peace within adverse situations which experienced traders would be able to have control over.
Backed by Faith – The digital nature of cryptocurrency implies that it lacks any form of physical backing. Instead, its price is entirely determined by the forces of supply and demand. Since the supply of most cryptocurrencies is predetermined or predictable, their prices are governed by how much interest they have stirred and how many people want to purchase the currency. As a result, the value of the currency is dependent on the faith people instill within it. In the event that people lose faith in it, they can choose to sell their currency which can lower its value.
Miniscule Market Operation - Cryptocurrencies have yet to fully take over investors’ and traders’ priorities and interests. While the cryptocurrency market has recently topped $2 trillion, it is still ions behind the total valuations of the gold market which amount to $7.9 trillion, and the U.S. stock market which is 14 times its value amounting to a valuation of $28 trillion. As a comparatively smaller emerging market, smaller forces are capable of having stronger impacts on the price of the cryptocurrency.
Technology Used is being Perfected – Blockchain and associated technologies used to aid varied forms of cryptocurrency are still being honed to perfection. Problems range from blockchain scalability to network congestion and rising transaction costs. That being said several advancements made to the technology have been received well.
The Role Media Plays – The media plays a major role in impacting cryptocurrency prices. Their stories pertaining to it can also add to the currency’s volatility. Added to this, several investors and traders involved with cryptocurrency may not due diligence about the news they receive which may not be from credible sources.
Each of these aforementioned factors enhances the volatility of the cryptocurrency markets which is known to move in irregular directions during irregular timeframes. It will take a long while before experts are able to determine how best to predict how this market operates.
Navigating Cryptocurrency Markets –
Those eager to invest in cryptocurrency markets should be aware of the pitfalls associated with its volatility. Endorsements by celebrities have been known to sway the price of varied cryptocurrencies. Take for instance Dogecoin which has seen a rapid upsurge since being promoted by Elon Musk. That being said there is no predicting where these currencies will go following these endorsements. This means that hyped currency valuations can very well fall dramatically. Prior to investing large sums of money, individuals must consider their understanding of the prevailing crypto technology governing their choice of cryptocurrency. Moreover, they must examine market trends pertaining to the same and similar currencies and understand why they are so volatile prior to making significant investments.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes. Discuss with your investment advisor before making such risky calls.
How would you rate this blog?
Related Blogs
Translate the power of knowledge into action. Open Free* Demat Account
Latest Blog
-
19 Mar, 2021
8 min read
Lessons on financial planning from IPL Auctions
Cricket and finance - sounds like polar opposites given the history of betting on each and every move that cricket fanatics in India track on their s…
-
27 Jun, 2021
8 min read
The buy-and-never-sell type of investor
Broadly, there are two types of participants in the stock market – long-term investors and traders.
-
20 Jul, 2021
8 min read
What is CMP in the Stock Market?
In previous times, the stock market was a physical space that traders set up offices and desks at, and stocks, shares and bonds were traded in physic…
-
03 Oct, 2021
7 min read
IPO Advantages and Disadvantages
An initial public offering (IPO) is the process through which a company goes public by selling its stock to retail and institutional investors. Looki…
-
10 Mar, 2022
7 min read
Russia vs Ukraine War: Impact On Indian...
The markets have reacted adversely to the Russia vs Ukraine war. Understand how the Indian stock market has been impacted.
-
16 May, 2021
7 min read
Is it Possible to Identify Moat Stocks?...
The impregnability of a fortress is defined by the effectiveness of its battlements, moats, barbican, towers, turrets and portcullis.
-
28 Jun, 2021
8 min read
Upcoming Healthcare Industry IPOs in 2021
All eyes are on the healthcare sector. Not just expectantly waiting for it to save the world for Covid-19, but also as an investment avenue.
-
25 Jul, 2021
12 min read
All About Commodity Market In India
Commodity markets are platforms that enable trading, buying and selling of commodities such as raw materials or primary products.
-
31 Jul, 2021
9 min read
Should you invest in the Paytm IPO?
The Paytm IPO has been making headlines for over a month now, so you have undoubtedly heard about it too.
-
13 May, 2022
5 min read
Why Gold Rate is Increasing Day by Day?
There are a number of factors contributing to the rising price of gold. This article seeks to shed light on the same.
-
29 May, 2022
5 min read
Why Elon Musk Bought Twitter: Impact on Investors
Understand what the implications of Elon Musk’s Twitter purchase are.
-
05 Aug, 2022
5 min read
What is a Terminal Value?
If you’ve ever asked yourself “what is terminal value?”, you’ve come to the right place. Understand its definition, scope, and the forms it takes.
-
01 Feb, 2022
6 min read
Top 5 IPOs of 2021
Here's a rundown of the top IPOs in 2021. Continue reading to know more about it!.
-
08 Mar, 2021
8 min read
Raghuram Rajan's polarizing stance on Bitcoin
Bitcoin has been in news ever since its inception around the global financial crisis of 2008, but this year, bitcoin hasn’t only been in news.
-
11 May, 2021
7 min read
The most expensive shares in India
The stock market has something to offer for everyone who is looking to invest. Some stocks can cost you a few hundred rupees, while others might be s…
-
11 May, 2022
8 min read
Top 7 Types of Investment Strategies in 2022
Take a look at the investment strategies provided below such that you can grow your wealth in 2022.
-
13 Feb, 2023
None min read
Warren Buffett's Investment Portfolio:...
Explore Warren Buffett's portfolio and learn how he became the world's sixth richest person. Follow his buy-and-hold investment strategy and discover…
-
03 Dec, 2021
7 min read
IRCTC Stock and Share Split
A beginner investor's guide to stock split, the headline-making IRCTC stock split and its dramatic stock price spike and dip.
-
18 Feb, 2022
7 min read
LIC IPO: Expected Date, Price, DRHP
The mammoth LIC IPO might be valued at about Rs 15 trillion. Here's all you need to know about the LIC initial public offering.
-
05 Jul, 2022
5 min read
Earnings Before Interest and Taxes (EBTA)
It's difficult to assess your company's financial health. There are a lot of numbers to think about, and they don't always add up. Accountants and fi…
-
31 May, 2021
8 min read
A throwback to the biggest rises and...
There are countless proverbs that are employed to offer caution and comfort to stock market investors: This includes “what goes up, must come down” …
-
09 Jul, 2022
5 min read
Benefits of Holding Stocks for Long Term
Understand the boons associated with long-term investments such that you too can consider availing them.
-
08 Oct, 2021
7 min read
Exploring top Retirement Savings Strategies
Saving for retirement is a smart financial strategy for anyone, whether they are 25 or 55. Here are the best strategies for retirement savings that w…
-
27 Oct, 2021
7 min read
Investors Walk Away from ViacomCBS Stock
Shares of ViacomCBS Inc. have been in the news recently for all reasons. It can be helpful for investors to understand what’s happening with this sto…
-
21 Aug, 2021
8 min read
Margin Trade Funding (MTF)
Those seeking to invest in the stock market have the opportunity to take advantage of a wide range of financial tools with which they can potentially…
-
29 May, 2021
8 min read
Over-diversification of your portfolio is...
One of the foremost pieces of risk-management advice given to a stock market investor is: diversify your portfolio.
-
28 Jan, 2022
7 min read
Long-Term Investments
Confused about what is meant by long term investments, under assets on a company’s balance sheet? Here’s all you need to know about this component of…
-
01 Aug, 2021
9 min read
Why companies are choosing the IPO route
You're hearing about all of these upcoming IPOs from brands that you know of and probably also use - Zomato, where you place your food orders; Paytm …
-
08 Nov, 2021
7 min read
Paytm IPO
Paytm is one of the biggest fintech platforms in India today, and is one of the latest IPOs in the Indian market. Read on to know more about the Payt…
-
14 Jun, 2021
8 min read
All you need to know about SIP
Everyone has heard of SIP by now because it has become quite a commonly quoted term – even if it isn’t always used correctly.
-
29 Jun, 2022
5 min read
Top 5 Best Trading Technical Indicators
Understanding the fundamentals of technical trading indicators may be quite beneficial if you monitor stock market activity on a regular basis. One m…
-
14 May, 2021
9 min read
Exploring the Telecom Sector as an...
Investing and trading on the Indian stock markets has the potential to bring in large returns.
-
17 Mar, 2022
6 min read
Preference Shares: Meaning, Types and Advantages
This article helps shed light on all that preferred stock entails including its definition, types, advantages and disadvantages.
-
03 Jul, 2022
5 min read
Invest in Inflation: 5 Ways to Invest...
Understand inflation’s meaning and what assets to invest in that are protected against it.
-
13 May, 2021
9 min read
What EV stocks are available and should...
EV stocks or stocks related to electric vehicles (hence the acronym EV) becoming increasingly popular as the world becomes more conscious of its carb…
-
29 Dec, 2021
5 min read
Stocks to Watch: Reliance Industries,...
Reliance Industries Share Price: A subsidiary of the Indian conglomerate Reliance Industries Limited, Reliance Industries Limited works in the refin…
-
18 Feb, 2022
7 min read
LIC IPO: Benefits for Policyholders
All policyholders must ensure that their PAN data are updated in their policy records in order to be regarded as an eligible policyholder for the nex…
-
29 Jun, 2021
9 min read
How to make money in the Stock Market in 2021?
The idea of investing is to enable your capital to grow. In fact, capital growth is in the very definition of the verb “to invest”.
-
10 May, 2021
8 min read
How do IPOs help economic recovery?
IPOs are an exciting investment opportunity for experienced and amateur investors and also a key ingredient in the cocktail that it takes to enable e…
-
15 Jun, 2021
8 min read
All you need to know about Lump sum investment
The term lump sum has become more relevant because of the rise of SIP investment or Systematic Investment Plans for mutual funds.
-
12 May, 2021
7 min read
What is the endgame for the...
With vaccinations in full swing despite the onset of the COVID pandemic, Indian stock markets seem to be taking a rather relaxed approach to COVID 2.…
-
29 Apr, 2022
7 min read
Top 10 Stocks for 2022
Understand what some of the good stocks for 2022 are and learn where you ought to direct your money.
-
08 Nov, 2021
8 min read
Upcoming IPO in Nov-2021
A number of companies have gone public this year and have successfully launched their IPOs in the market. Read on to find out more about the upcoming…
-
11 Nov, 2021
8 min read
Is Google a Good Investment?
Some analysts feel that Google is a relatively secure stock to buy both qualitatively and quantitatively. The soundness of Google's balance sheet con…
-
23 Jan, 2023
None min read
Know About Hindsight Bias
Want to know a secret mistake that all of us make but do not realise? Hindsight bias is a folly that makes people waste their money, time and effort …
-
30 Nov, 2021
8 min read
10 Ways to Profit in a Bear Market
A bear market need not be the worst thing if you have a couple of tricks up your sleeve. Here are a bunch of strategies that call for varying levels …
-
10 Jun, 2021
10 min read
Tax Exemptions in India: Simplified
The Income Tax Act, 1961 provides numerous exemptions to taxpayers under sections 80C to 80U of the Act.
-
06 Jul, 2022
5 min read
Top 9 Upcoming Dividend Paying Stocks in...
The upcoming dividend stocks will be mentioned in this post, along with other crucial dividend-related concepts.
-
27 Mar, 2021
7 min read
Twitter as a market forecasting tool
Most of us use one or more social media platforms in today's digital age. Remember the days when Facebook came into existence, and how everyone was f…
-
26 Jun, 2021
9 min read
Warren Buffett's Portfolio 2021: Top 5...
When it comes to investing, the seasoned trader and the novice alike look up to the holy grail of investors - Warren Buffett.
-
16 Jun, 2021
8 min read
All you need to know about term insurance
Insurance is one of the oldest forms of investment that exists on the investment landscape and as such you have definitely heard about it.
-
29 Mar, 2021
7 min read
ESG Funds: The numbers behind the new...
Over the last few years, investing through funds has gained considerable popularity, and investors across the globe are looking to give their savings…
-
30 Jun, 2021
9 min read
Things to know before Investing in any IPO
IPOs are exciting to stock market investors in the same way that a big-ticket film release is exciting to the general population.
-
25 Oct, 2021
6 min read
Blue Chips Fuel Record
Blue-chip firms are noted for weathering economic downturns and operating financially in the face of adversity, which contributes to their long track…
-
14 Aug, 2022
7 min read
What is Back Stop?
Backstop refers to the last type of support provided for unsubscribed shares or securities offered in the sale of unsubscribed shares in the stock an…
-
05 May, 2021
7 min read
Understanding the impact of COVID 2.0 on...
When the COVID pandemic struck India last year, Sensex plunged from the 45,000+ levels right to sub-30,000 levels within a matter of five weeks.
-
03 Aug, 2022
7 min read
How To Diversify Your Portfolio
Understand how to diversify your portfolio and the benefits associated with this diversification.
-
28 Mar, 2021
7 min read
Fund of Funds: Should these be in your portfolio
Imagine that you wanted to install a new switch board in your room when the work from home craze started after the lockdowns.
-
29 Jul, 2022
5 min read
Buy and Sell Strategy
Understand the merits associated with the “buy low, sell high” adage and determine whether or not it is actually easy to implement this buy and sell …
-
26 Mar, 2021
8 min read
A closer look at the Blue Economic Policy
You might have heard about the Blue Economic Policy in the news. Have you been wondering what it is all about, and what the implications will be for …
-
18 Feb, 2022
6 min read
LIC IPO Details: Should You Subscribe or Not?
The public offering, according to the LIC DRHP (Draft Red Herring Prospectus), is entirely an offer for sale, with the government selling a 5 percent…
-
05 Jan, 2022
8 min read
5 Stocks to Watch Out for Amid the...
Keep a watch on these stocks once the new Omicron version appears. Read on to know more!
-
09 Mar, 2022
8 min read
Understanding Different Types of Stocks
This article makes clear the varied forms of stocks available in the stock markets today.
Ready To Trade? Start with
Subscribe to #SmartSauda Newsletter
CONTINUE WITH GOOGLE
CONTINUE WITH FACEBOOK
