How to Invest in Cryptocurrency in India: All You Need To Know

With an estimated 100 million crypto users, India leads the world in the number of people owning and trading cryptocurrencies. 

This user count suggests a massive involvement of people in the digital assets dealing within the country. However, for newbies, investing in crypto can take time to navigate. 

This article will help new and inexperienced traders understand how to invest in cryptocurrencies safely and effectively in India. 

We will guide you through all the steps, from the safe platform selection to understanding tax regulations. Therefore, cryptocurrency investment in India will be very rational and informative.

Cryptocurrency Market In India

The chart lists India's top ten cryptocurrencies by market capitalization as of May 5, 2024. Market capitalization measures the total value of all outstanding coins of a particular cryptocurrency. It is calculated by multiplying the price of one coin by the number of coins in circulation.

Here are some of the details listed in the chart:

• Coin - The name of the cryptocurrency.
• Price - The current price of one coin in Indian rupees (₹).
• 24-hour Change - The percentage change in the coin's price over the past 24 hours.
• Market Cap - The total market capitalization of the cryptocurrency in crores of rupees (Cr).

Bitcoin (BTC) is the most valuable cryptocurrency, with a market capitalization of over ₹100.6 trillion. Ethereum (ETH) is second, with over ₹29.2 trillion capitalization. 

Tether (USDT), a stablecoin pegged to the US dollar, is in third place, with a market capitalization of over ₹9.26 trillion. The chart provides a snapshot of the relative dominance of different cryptocurrencies in the Indian market. 

The Indian cryptocurrency market is experiencing a resurgence, fueled by the recent bull run in Bitcoin. Trading volumes on major Indian exchanges like UEEx, CoinDCX, WazirX, and BitbNS have reached their highest levels in ten months, indicating renewed investor interest. 

This surge comes after a period of sluggish trading in 2022-2023. One key driver is the significant rise in Bitcoin's price, currently hovering around $61,000 (₹5,108,370), though still below its all-time high. Additionally, growing institutional investment is playing a significant role. 

The launch of Bitcoin exchange-traded funds (ETFs) has opened avenues for traditional investors to participate in the crypto market, broadening accessibility and fueling excitement.

How to Invest in Cryptocurrency in India

The process is quite straightforward! Follow the steps below to get you invested in cryptocurrency, from choosing a reputable exchange to securely storing your digital assets.

Research Exchanges

Begin by researching which cryptocurrency exchanges are available in India. Look for platforms with a good reputation, robust security measures, and user-friendly interfaces. UEEx is a good choice for a beginner, as it’s known for reliability and wide range of available cryptocurrencies.

Create and Verify Your Account

Register an account on the exchange of your choice by providing your details. You will need to undergo a verification process, typically requiring you to submit copies of your government-issued ID (like a PAN card) and proof of residence (such as a utility bill or bank statement).

Secure Your Account

Implement security practices to protect your account. Most exchanges recommend, or even require, setting up two-factor authentication (2FA). Use strong, unique passwords for your accounts, and consider using a secure email address dedicated to your crypto activities.

Deposit Funds

Once your account is secure and verified, deposit funds into it. Most Indian exchanges allow you to deposit INR directly using various methods such as bank transfers, UPI, or debit cards. Check for any deposit fees that may apply.

Buy Cryptocurrency

With your account funded, you can buy cryptocurrency. Exchanges typically offer a 'buy/sell' tab where you can select from the cryptocurrencies available on the platform. 

Enter the amount you wish to purchase and execute the transaction. Some exchanges also offer features like recurring buys or automated trading.

Use a Wallet for Added Security

While you can keep your crypto on the exchange, storing your digital assets in a private wallet is safer. Wallets can be hardware-based (like Ledger) or software-based (like those running on smartphones or computers). Hardware wallets are generally more secure due to their offline nature.

Monitor Your Investments

Cryptocurrency prices can be highly volatile. Use tools provided by the exchange or third-party apps to monitor the performance of your investments. This can help you make informed decisions based on market trends and developments.

Diversify Your Portfolio

To mitigate risks, diversify your investments across different types of cryptocurrencies and other asset classes. Diversification can help manage risk and reduce the impact of poor performance from a single investment.

Stay Updated With Regulations

The regulatory environment for cryptocurrency in India is evolving. Stay informed about new regulations and guidelines from the government and financial authorities to ensure compliance and to understand how these rules might impact your investments.

Plan Exit Strategies and Tax Implications

Decide in advance your goals for each investment, including when and how you might sell your crypto. 

Consider setting up stop-loss orders to sell at a specific price to limit potential losses automatically. 

Additionally, be aware of the tax implications of trading cryptocurrencies, as any gains from trading are subject to capital gains tax in India.

Legal Status of Cryptocurrency in India

The legal landscape surrounding cryptocurrency in India is murky and evolving. Despite the absence of an explicit ban, cryptocurrencies are not recognized as legal tender in India. 

This creates a grey area where cryptocurrency transactions occur outside the purview of any regulatory body, leaving investors to navigate the market at their peril. The Indian government's stance on cryptocurrencies seems contradictory. 

On one hand, the Reserve Bank of India (RBI) previously attempted to ban cryptocurrency trading, and some government officials have expressed concerns about their potential for money laundering and financing illegal activities. 

However, the recent imposition of a 30% tax on income earned from cryptocurrency gains suggests a move towards acknowledging and potentially regulating the market. 

While not explicitly legalizing cryptocurrencies, some have interpreted this tax policy as a first step toward their formal recognition.

The lack of clear regulations makes it difficult for businesses to accept cryptocurrencies as payment and creates uncertainty for investors. The introduction of a Cryptocurrency Bill, initially planned for 2021, has been delayed twice. 

The latest statement from the Ministry of Finance underscores the need for international collaboration in crafting regulations for this digital asset class. This suggests a comprehensive framework governing cryptocurrencies in India might still be some time away.

Difference Between Cryptocurrency vs. Fiat Currency?

Here's a breakdown of the key differences between cryptocurrency and fiat currency (like rupees):

Central Authority

Rupees are a centralized currency controlled and issued by the Reserve Bank of India (RBI). The RBI manages the supply of rupees in circulation, impacting inflation and interest rates.

Cryptocurrencies are decentralized, meaning no single entity controls them. Transactions are secured through cryptography and recorded on a distributed ledger called a blockchain, accessible to everyone.

Regulation

Rupees are heavily regulated. The R.B.I. sets the rules for transactions, money laundering prevention, and foreign exchange.

Cryptocurrencies are currently unregulated in India. There are no set rules or guidelines for transactions or dispute resolution.

Value Determination

The value of rupees is determined by a combination of factors, including government stability, economic performance, and central bank policies.

The value of cryptocurrency is primarily driven by supply and demand in the open market. Some cryptocurrencies, like Bitcoin, have a capped supply, which can influence their price.

Stability

Fiat currencies are generally considered more stable than cryptocurrencies. The RBI implements measures to control inflation and maintain the value of the rupee.

Cryptocurrencies are known for their volatility. Prices can fluctuate significantly in a short period, making them a riskier investment compared to rupees.

Usability as Payment

Rupees are widely accepted as a medium of exchange for goods and services.

While gaining traction, cryptocurrency adoption for everyday purchases still needs to be improved. Due to the volatility and regulatory uncertainty, many businesses need more time to accept them.

Top Cryptocurrency to Invest in India?

In India, cryptocurrency investment options are varied, and choosing the right ones can depend on your investment goals and risk tolerance. Here are some of the more popular types of cryptocurrencies to consider investing in:

Bitcoin (BTC)

Current Price:  ₹5,084,292.17 per BTC

Market Cap: ₹100,153,273,110,037.89

While Bitcoin (BTC) boasts impressive historical growth and established technology, it's essential to approach it with a balanced perspective when considering it for investment in India.

On the positive side, Bitcoin offers undeniable advantages. Its global reach, secure blockchain technology, and transparent transaction processing make it attractive. The massive growth it's experienced over the years is tempting for investors seeking high returns.

However, Bitcoin also comes with significant drawbacks. Its price volatility is a primary concern, as its value can fluctuate dramatically, making it a risky investment. Additionally, the regulatory landscape surrounding cryptocurrency in India remains to be seen, which adds another layer of uncertainty.

While Bitcoin may be the most well-known cryptocurrency, it's not necessarily the "safest" choice for Indian investors, especially considering the current tax implications on crypto income.

Ethereum (ETH)

Current Price: ₹249,406.97 per ETH

Market Cap: ₹29,907,012,839,033.15.

Ethereum presents a compelling option for cryptocurrency investors in India, following Bitcoin, for several reasons. 

Similar to Bitcoin, profits from Ethereum investments may be subject to a 30% short-term capital gains tax or a 20% long-term capital gains tax, depending on your holding period. 

However, unlike Bitcoin's focus on simply being a digital currency, Ethereum's core strength lies in its ability to facilitate a wide range of decentralized applications (dApps) and smart contracts. This functionality positions Ethereum at the forefront of blockchain technology and potentially fuels its long-term growth.

Ethereum's established network contributes to its reliability and security. While past performance does not guarantee future results, Ethereum's price increase of over 60% in the last year suggests its potential for value appreciation.

Ethereum's unique capabilities and established ecosystem make it a severe contender for investors seeking a foothold in the Indian crypto market.

Cardano (ADA)

Current Price: ₹36.73 per ADA

Market Cap: ₹1,310,429,737,391.31.

Like Cardano (ADA), Altcoins can be an exciting investment opportunity in India, offering potentially high returns. Cardano boasts several features that make it a contender in the top coin category.

Firstly, Cardano's secure and scalable blockchain utilizes a proof-of-stake validation system, resulting in faster transaction speeds than proof-of-work models like Bitcoin. This efficiency can be attractive to users and developers. 

Cardano's strong community backing and a significant treasury holding (over 1.5 billion ADA coins) fuel its long-term potential. The treasury grows through transaction fees and block rewards, providing a self-sustaining ecosystem for future development.

However, Cardano is still a young platform compared to established players like Ethereum. While it supports smart contracts, it lacks a wide range of decentralized applications (dApps) with significant user bases. 

This can be a concern for investors seeking immediate returns from network effects. The recent performance of Cardano's native stablecoin, DJED, further highlights the need for successful application development to drive ADA coin adoption truly.

Ripple (XRP)

Current Price: ₹42.28  per XRP

Market Cap: ₹2,341,604,575,865

XRP presents a unique case for investment in India. Unlike Bitcoin's decentralized structure, XRP is developed by Ripple, a centralized company. 

However, it shares some features with established currencies. XRP boasts a capped supply of 100 billion tokens and facilitates fast, low-cost transactions, potentially making it attractive for cross-border payments. 

Banks and financial institutions in India also heavily utilize it. XRP enjoys some institutional backing from financial giants like Santander and Standard Chartered.

However, a significant hurdle exists. The SEC's lawsuit against Ripple alleging security law violations has shadowed XRP's future. This legal battle led some trading platforms to delist XRP, impacting its liquidity and value.

Therefore, while XRP offers potential for efficient transactions and has garnered institutional support, the ongoing legal case creates substantial uncertainty for investors in India, especially considering the unstable regulatory landscape for cryptocurrencies in India.

Tether (USDT)

Current Price: ₹83.55 per USDT

Market Cap: ₹9,241,033,816,456

Tether (USDT) could be a suitable option for investors in India seeking stability for their crypto holdings. 

Unlike traditional cryptocurrencies known for price swings, USDT is a stablecoin pegged to the US dollar. This means its value is designed to stay close to ₹84, offering a hedge against the volatility often experienced in the crypto market.

Since USDT is built on the Bitcoin blockchain, it benefits from the security and transparency associated with this distributed ledger technology. 

This can comfort investors wary of unfamiliar or unregulated digital assets. Additionally, USDT's high liquidity makes it easily tradable for other cryptocurrencies, allowing investors to move between assets quickly if needed.

While Tether offers stability relative to other cryptocurrencies, it has risks. U.S.D.T.'s stability relies on Tether Ltd. maintaining sufficient reserves to back its tokens.

Best Cryptocurrency Exchanges in India

Selecting the proper exchange is crucial for the security and ease of your cryptocurrency transactions. Here are some key factors to consider:

• Security: This should be your top priority. Look for an exchange with a strong reputation for safeguarding user funds. Features like two-factor authentication, secure login protocols, and encrypted storage of digital assets are essential.
• Regulation: While there's no governing body, some exchanges register with the Financial Intelligence Unit India (FIU-IND). Opting for an FIU-IND registered exchange offers some assurance regarding anti-money laundering (AML) and combatting the financing of terrorism (CFT) protocols.
• Supported Cryptocurrencies: Make sure the exchange offers the specific cryptocurrency you've chosen to invest in. Many platforms provide various cryptocurrencies, allowing you to diversify your portfolio if you wish. Consider whether the exchange supports fiat-to-crypto transactions (buying crypto with rupees) or if it primarily deals in crypto-to-crypto trading pairs.
• Trading Fees: Transaction fees can vary significantly between exchanges. Look for a platform with competitive fees for buying, selling, and depositing/withdrawing funds. Some exchanges may also have additional charges for activities like margin trading or using advanced order types. Factor these fees into your overall investment strategy.
• User Interface: A user-friendly and intuitive platform is essential, especially for beginners. Evaluate the exchange's website or mobile app for its ease of navigation, order placement functionality, and access to market data and informative resources.

When choosing the best cryptocurrency exchanges in India, it's essential to consider the factors above. Here are some of the top cryptocurrency exchanges in India, each known for its specific strengths:

UEEx

UEEx, is a one-stop shop for crypto enthusiasts. Beyond trading, it offers features like a built-in wallet, DeFi mining, cloud mining, and copy trading. 

This caters to many users, from beginners to experienced traders seeking margin trading and contract leverage options. UEEx boasts over 200 cryptocurrencies, a DeFi focus, and user-friendly tools for managing and spending crypto holdings. 

Security is a focus, with regulatory compliance and a user-friendly wallet. While feature-rich and secure, UEEx's ranking among the best Indian exchanges depends on individual needs. Compare it with others based on factors like fees and ease of use to find your best fit.

WazirX

WazirX presents a strong case for being a top contender among cryptocurrency exchanges in India. It caters to a broad audience with a user-friendly interface and a vast selection of over 250 cryptocurrencies for trading. 

The straightforward KYC process and support for direct deposits and rupee withdrawals can be beautiful for beginners.

WazirX implements 2-factor authentication, bug bounty programs, and regular audits to safeguard user accounts. They also provide educational resources to help users avoid scams.

CoinDCX

With 10 million users, CoinDCX is a popular cryptocurrency exchange platform in India known for its user-friendliness and security features. 

They offer a wide variety of over 100 cryptocurrencies for trading, catering to investors with diverse interests. CoinDCX is attractive to beginners due to its simple interface, mobile app availability, and easy purchase options.

CoinDCX employs robust security measures to protect user funds, storing 95% in geographically distributed cold wallets with advanced hardware security modules. 

Overall, CoinDCX's user-centric design, security measures, and diverse cryptocurrency offerings make it a strong contender for investors looking for a reputable exchange platform in India.

ZebPay

As one of the oldest cryptocurrency exchanges in India, ZebPay is a strong contender for investors looking for a secure and user-friendly platform. 

Launched in 2014, ZebPay boasts a long track record in the Indian market and has established itself as a trusted player. 

They prioritize user security by storing 98% of assets in secure cold storage and implementing multiple layers of protection, including two-factor authentication and bug bounty programs.

ZebPay caters to both experienced traders and beginners. Their user interface is known for being easy to navigate, and they offer features like lightning network payments and zero deposit fees to streamline the trading experience. 

ZebPay supports many significant cryptocurrencies, allowing investors to diversify their portfolios. With over 5.5 million users and a strong reputation for customer service, ZebPay is a solid option for those considering entering the Indian cryptocurrency market.

BitBNS

Established in 2017, they've captured a significant market share, boasting over 4 million users and surpassing competitors in trading volume by mid-2022. 

This popularity can be attributed to several factors. Bitbns prioritizes user experience with a user-friendly interface, making it easy for beginners to navigate the platform. 

BitBNS offers features like two-factor authentication, Google authentication, and a bug bounty program to identify and address vulnerabilities. 

Furthermore, Bitbns offers various cryptocurrencies for trading, catering to diverse investor interests. They also go beyond basic transactions by providing features like margin trading and fixed-income crypto plans, potentially appealing to more experienced investors seeking advanced options.

Crypto Taxes in India

The Indian government has brought cryptocurrency transactions under the tax umbrella, classifying them as Virtual Digital Assets (VDAs) and imposing a clear taxation structure. 

This move signifies a significant step towards legitimizing cryptocurrencies in India, even though the legal status still needs clarification.

Under these regulations, any profits from cryptocurrency activities such as trading, selling, or using them for purchases are subject to a flat 30% income tax and a 4% surcharge. 

This applies irrespective of the investment strategy - short-term or long-term capital gains or even business income derived from crypto - eliminating the benefits typically associated with long-term holdings of traditional assets.

To ensure proper monitoring of cryptocurrency transactions and discourage tax evasion, the government has mandated a 1% Tax Deducted at Source (TDS) on any crypto asset transfers exceeding ₹50,000 (or ₹10,000 in some instances) within a financial year. 

This TDS provision applies to all participants in the crypto market, encompassing both individual investors and commercial traders. Indian cryptocurrency investors must meticulously track their crypto transactions and report their income on their tax returns. 

While the tax rate is straightforward, calculating your exact crypto tax liability can involve effort, especially if you've made multiple transactions throughout the year. Several online crypto tax calculators can help you compute your crypto tax liability in India.

Conclusion

The Indian government now recognizes cryptocurrencies like Bitcoin as digital assets and has set clear tax rules, which include a 30% tax on profits and a 1% tax on more significant transactions. This move helps integrate cryptocurrencies into the financial system more officially. 

Despite some ongoing regulatory challenges, investors are interested, and trading volumes on popular exchanges like WazirX and CoinDCX have significantly increased. 

This growth shows that cryptocurrencies are becoming an increasingly important part of India's financial landscape, offering new opportunities for investors and influencing the broader economy.

However, investors need to investigate properly, always be aware of the associated risks, and learn more about the constantly fluctuating nature of cryptocurrency.

Frequently Asked Questions