Crypto is a wild ride, should you be on it too?

So far, most news headlines are reporting a bull run in cryptocurrencies led by Bitcoin and Ethereum. Bitcoin is king, but its little brother Ethereum is not far behind. Even as retail investors try to make sense of all this, high net worth individuals (HNIs) already park 1-3% of their funds here.

Asked about his outlook, Bengaluru-based private investor Krishna Jha said, “The next bull market has begun and prices will be higher than before.” However, Jha says he has no intention of betting on cryptocurrencies. “My cryptocurrency holdings are zero.” His holdings are through a U.S.-based exchange-traded fund (ETF).

Imagine a treasure chest filled with a limited number of gold coins. Due to its rarity and value, it is highly sought after. Bitcoin works on a similar principle. Unlike government-issued currencies, there is a cap on the total number of Bitcoins that can exist: approximately 21 million. This rarity makes it more valuable, especially when demand starts to increase.

Also read: Bitcoin begins to rise after setting new record

Adding to the scarcity value is that the number of new Bitcoins that can be mined is cut in half every four years. The next halving is scheduled for April this year. Think of this as a treasure chest with more limited access. Therefore, this long-awaited event in April is driving the price of Bitcoin higher due to more demand chasing a smaller pool of assets.

There's also the fact that traditionally buying Bitcoin requires going through complex cryptocurrency exchanges and secure storage wallets. This was scary for new investors. However, the situation changed when the Indian government allowed Indian investors to buy spot Bitcoin ETFs in India.

These ETFs function similarly to mutual funds. Thinking objectively, if you want biscuits, you don't need to build a biscuit factory. Instead, buy a packet that fits your needs. In contrast, regular Bitcoin miners have the infrastructure to build factories. With a spot ETF, similar to a mutual fund that buys a basket of stocks, you have the option of buying a packet of biscuits along with other assets. This makes it easier to handle and allows investors to buy Bitcoin indirectly. With the door open to more people, interest from retail investors is also increasing.

When it comes to Ethereum, the proposal is a little different. Our goal is to become the “world's computer.” And the company wants to compete for a place in the global banking system. This means it is a potential competitor to Finacle, which is built by Infosys. As we mentioned, Finacle is a core banking product that banks use to provide digital services. It is a centralized system that banks use to manage accounts, process transactions, and provide a variety of services securely and efficiently.

Also read: Bitcoin price briefly surpasses $69,000, setting new all-time high

In contrast, Ethereum is a large global network of computers (nodes) that can run software applications in a decentralized manner. Ethereum’s main feature is the ability to execute smart contracts. Think of it as a self-executing contract where the terms and conditions are written directly into the code. Once the conditions are met, the contract terms are automatically enforced and executed without the need for an intermediary. It can be used for a wide variety of applications, from financial agreements to voting systems.

And ETH is the native cryptocurrency of the Ethereum network. We refer to ETH as the fuel or gas that powers the Ethereum ecosystem. Critics of Ethereum were not convinced by its ability to scale. However, Ethereum’s “Dencun” upgrade, scheduled for mid-March, aims to improve efficiency and scalability. This could attract more developers and users to the platform, increasing the demand for ETH.

“The bull market is definitely back,” declares Tanuj Bhojwani, a Bangalore-based public policy enthusiast and fintech analyst. That said, Bhojwani also urges caution. “Cryptocurrency is a decadent gamble that many young people are participating in. And now that institutions have stepped in, the party will be wild for weeks.” Bhojwani's comments are worth pondering: People Is it okay for people to participate in these types of bets? For that matter, can they handle wild parties? Probably not yet.