image 1326770854 1 Looking to invest in crypto tokens? Make sure you do your security selection first!

Looking to invest in crypto tokens? Make sure you do your security selection first!

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– A falling stock market is not bad for everyone. Sure, many investors lose out as their portfolios decline in value, but those who are just starting to invest or have underweighted equities can benefit from lower valuations, which tend to deliver higher returns over the long term.

– With nearly 10,000 cryptocurrencies available, security selection should matter. So, does it? Can token pickers demonstrate differentiated performance?

– One of the more profitable approaches to cryptocurrencies is to invest in the private seed round of a start-up seeking token financing. The early price tends to be heavily discounted relative to the public sale price, which is comparable to pre-IPO investing.

– But more than four out of five tokens trade below their initial trading price, according to an analysis of nearly 10,000 cryptocurrencies by Jackdaw Capital, a London-based asset manager.

– Such odds – less than 20% that a token traded on an exchange will eclipse its initial listing price – make token investing challenging. But there are different kinds of tokens. Some categories might still offer investors the prospect of attractive returns via security selection.

– To find out, we constructed a universe of the more than 3,500 tokens trading today and divided them into 17 categories. The largest category – non-fungible token (NFT) and collectibles – had 585 constituents, while the smallest – move to earn – had only 19. These token varieties represent different crypto products that ought to be relatively uncorrelated.

– Next, we created equal-weighted indices for each of the 17 token categories. The majority of our categories have only a few years of trading history, but NFTs and masternodes go back to 2013 with track records of almost a decade.

– Most of these indices generated such abnormally high performance that we needed a logarithmic scale to measure them. This explains much of crypto’s appeal: The potential for 1,000% annual returns can be tough to resist.

– But the crypto market hit a rough patch over the last few months. Its total market capitalization decreased from nearly $3 trillion to less than $1 trillion, while bitcoin declined from an all-time high of $69,000 in November 2021 to $20,000 as of this writing.

– Still, the log charts hardly register the cryptocurrency crash of 2022 since token indices use the mean return and equal weighting for index calculations. Tokens exhibited such a high positive skew that the average return moved up significantly more than down. For example, Terracoin (TRC-USD) skyrocketed from $52 to $2,535 in just a few days in 2013. The maximum a token can lose is 100%, but the upside could be parabolic.

 

 

image 1326770854 Looking to invest in crypto tokens? Make sure you do your security selection first!
Looking to invest in crypto tokens? Make sure you do your security selection first! 3

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