Dhirendra Kumar explains.
How does one buy and sell cryptocurrency? Do we really earn from IPOs?
- Meera Mehta
There are so-called entities that claim to be exchanges for buying and selling cryptocurrency. But I don't find them to be exchanges because they lack an operating framework. Exchange is the facilitator where buyers and sellers interact, and a depository holds securities. But in the case of cryptocurrency, you don't need a depository because it's a distributed ledger, and as a large number of individuals are buying small quantities of something, the verifiability of all this is quite questionable, to my understanding.
So there will be legitimate exchanges, and there will be racketeers, and the latter can thrive simply because many people are willing to put money in. One can connect to the price series of crypto live from somewhere, and people will start buying and selling. So that can well be a dabba trading as there is nothing in the underlying. People simply look at the price and start buying and selling. For that matter, we can start speculating on anything if we want to. I've come across people who speculate on the next ball in a cricket tournament and bet some money. The point is that people are holding a legitimate framework about crypto in their minds, which I think is very dangerous. It can take people in the wrong direction and short-change them with a lot of money, so be careful about it.
Coming to IPOs, there are two ways of making money in them. One is to keep investing in IPOs at a fantastic pace, i.e., investing in an IPO, getting the allotment, selling it, and then investing in the next one.
However, be a little selective about them and ignore the very questionable ones. At Value Research Online, we do an IPO information analysis where we come up with 28 relevant questions on every IPO and look at them, particularly the prominent ones. You can also look at the information analysis of all the IPOs in the past. The other way of doing it is to ignore most of them but read and learn about these companies. And once in a while, you'll come across a great company at an attractive price. Fear of missing out is something that every investor should overcome. Most people think that this is the last opportunity when they'll be able to buy a stock. It's never like that. Some of the finest companies can be bought at a far lower price if one has patience.
Further, if you're a mutual fund investor, you can ignore the IPOs totally because your mutual fund manager takes care of them. They will invest in good IPOs, ignore the bad ones, and manage the allocation of money. No mutual fund manager will invest 30 per cent of the money into IPOs, which an individual investor can well do. So most investors can ignore these IPOs but if you're a thoughtful stock investor and want to do so, be very careful and selective.