10 reasons not to invest in Bitcoin fixed deposits

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Yield four times higher than traditional fixed deposits! It was the advertisement for a cryptocurrency exchange, which hit TV screens last weekend.

I have been inundated with so many inquiries from investors on this scheme. Any scheme that attracts investors with high returns is to me a Ponzi scheme.

Here are 10 reasons why you should avoid such diets:

1) This is not a fixed deposit but a loan product. An investor who owns a cryptocurrency can choose to lend the stake in exchange for interest. Investing in a fixed deposit and lending your money has totally different ramifications and cannot be equated with. So, stop thinking of it as a fixed bank deposit.

2) Investors who lend do not know the profile of the borrower. Would you like to lend money to an unknown person?

3) Like cryptocurrencies, these so-called term deposits are not regulated by the RBI, which means there is no investor protection or regulatory body overseeing these platforms. Banks and non-bank financial corporations (NBFCs) have many regulations to follow, which are not applicable to cryptocurrency platforms.

4) Interest on the cryptocurrency fixed income product is received as coins and not as a credit to your account. This means that the interest will also be subject to the volatility of cryptocurrencies and unless you sell the stake you will not earn real money.

5) Some platforms do not allow early liquidation or impose limits on early withdrawal.

6) Each platform has its own rules for calculating interest, blocking period, etc. Unlike bank term deposits, there are no standardized rules to follow. It is not in the best interests of investors.

7) Platforms carry a risk of being the subject of a hacking attack. Recent reports suggest that the use of cryptocurrency for money laundering is rapidly gaining acceptance around the world.

8) Most platforms have no pedigree or experience and are trying to become shadow banks. Investors are afraid of losing money in mutual funds managed by experienced and recognized fund managers, but are happy to invest in these fixed income products because of the higher returns. Why not invest in a loan shark then?

9) A large majority of people do not understand how cryptocurrency works and the risks associated with it. They’re influenced by exponential returns, but those returns won’t go on forever. Always understand the risk of the product before returning.

10) As an investor, how are you going to tie this to a financial goal. For example, if you invest in this product for a 6 month period for a specific goal and the crypto price is hit, do you have a plan B to handle the goal amount?

Since time immemorial, people have been attracted to high yield schemes and each time it is the investor who loses.

The platforms / owners / stakeholders have struck money at the expense of the investor. This has been seen in chit funds, planting programs, jewelry programs, and many more products.

Remember, there is no such thing as high returns without risk.


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