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Crypto is the Wild West of investing. Where Silicon valley meets Walls Street, mafia kingpins and Snap-obsessed Generation Zers, all come together alike. Crypto has emerged as an asset class sported by (self-proclaimed) crypto-fanaticsâââwith blind faith in an alternate futureâââand investors with large appetites for risk.
The key idea behind Diversification is to increase exposure to a diverse set of asset classes, that are preferably uncorrelated.
Diversification, on the other hand, is the strategy deployed to offset risk. Diversificationâs primetime avatar is the index fundâââthat allows investing in the market as a whole, spread across stocks in the top fundsâââand provides resilience against the sways of individual stock. The key idea behind diversification is to increase exposure to a diverse set of asset classes and scenarios, that are preferably uncorrelated e.g. donât invest in steel and automobiles simultaneously, invest in oil and clean energy at the same time to bet on competing outcomes, etc. A few bad choices donât wipe out your net worth, and you have tempered exposure to wins across markets. The idea is simple and yet so sound that the likes of Warren Buffett and Tony Robbins are vocal advocates.
Source: Money Master the Game by Tony Robbins
What if there was a way to combine theseâââthe Wild West of modern monies, and the Conservative Pragmatism of the Grandfather of Investing?
Crypto achieves itâs great victory when it hits the mainstream. When it is accepted by everybody from Neiman Marcus to your local newspaper stand. Yes, I said crypto and newspaper stand in the same breath. Outside technology and regulation, one of the barriers to this are the relative obscurity of the spaceâââthe masses view money traditionally, as coins and notes, preferably in piles conducive to wading.
Illustration by lobosolitario1983
The shift in the idea of money from a wadable-entity to a stream of bits and bytes moving through a complex, shadowy web of digital ledgers and mining operations has been treated by the public with the sort of skepticism reserved for drug-dealers and con-artists. Given the massive volatility in the spaceâââthis is not entirely without basis.
The barrier to invest fully in Crypto markets is high.
In addition to the intrinsic risk and constant redistricting of crypto marketsâââ100's of new currencies emerging and dying daily, investing in Digital currencies is also somewhat hindered by the tight coupling of smaller currencies to certain larger currencies like Bitcoin. E.g. You cannot convert dollars to top-10 coins such as Stellar, without first buying Bitcoin. The barrier to invest fully in crypto markets is highâââwith levels of indirection and technical expertise required. That said, the space is evolving rapidly, not just in currencies flooding in and out, but also in tools that democratize access to it. Tools that bring decades of learned expertise about financial investment and portfolio optimization.
Complete custody is like using a fund manager to manage your wealth without ever handing your assets to them.
One such tool is Ember Fund. Ember Fund is run in an incubator off of Venice Beach by a group of ad-tech veterans. It takes the very simple idea of Diversification and applies it to crypto. Hoping to tame some of those crazy peaks and valleys we saw last December. Itâs power is in simplicityâââit exists as an iPhone app, and grants users complete custody of their assetsâââthis is the equivalent of using a fund manager to manage your wealthâââwithout ever handing over your assets to them.
Why Diversify your Crypto Portfolios?
Uncle Brigadier Bakshi retired from the army in 2014 and now ardently invests in stocks. He tracks his investments like a hawk, employing the niftiest of tools. His most recent question was, âShould I invest in bitcoin? Is the buzz real?â.
It is easy to get lost in the Bitcoin legend and miss the true innovation happening under the hood.
Bitcoin has captured the attention of millions. Like most compelling stories it is appealing in its dramatic stealing of the spotlight. Like most compelling stories, it carries an air of fiction. Except that it is not story and it is not fiction. It is easy to get lost in the Bitcoin legend, itâs vicissitudes and miss the innovation happening under the hood. The true potential for Blockchain technologies to irrevocably disturb the status quo, in a way that cross cuts industries and doesnât restrain itself to finance.
The percentage of Crypto that is Bitcoin has dropped, this despite itâs own intrinsic net rise.
Research into the larger eco-system indicates that Crypto is growing, exponentially.
Source: Evolutionary dynamics of the cryptocurrency market
At the same time the percentage of this market that is Bitcoin has dropped, despite itâs own net rise.
Source: Evolutionary dynamics of the cryptocurrency market
Since January 1st 2017, Bitcoinâs market cap has fallen from 85% to 50%. While still demonstrating 62% net positive growth.
Source: CoinMarketCap
Barring itâs inherent volatility and reduction in Market Cap Bitcoin has demonstrated staggering net positive growthâââ62% over the past year, 900+% over the past two, and that increases as we go further back.
The reduction in Bitcoinâs market cap as a percent of the larger Crypto space, and itâs simultaneous gross increase in value over the years is indicative of how much the space is growing. Outgrowing the confines of itâs genitor, Bitcoin, newer coins have appeared for new applications and use cases.
The Altcoin Opportunity
New incumbents are vital in hedging against Bitcoin volatility.
While Market Caps are telling, they are not the only indicators of value. On other indicators such as liquidity, growth, ecosystem and utility, several incumbents have emergedâââEthereum for smart contracts(market cap 21b, as of this writing), Ripple that enables cross-border payments(18b) and Monero and DASH that add layers of privacy and anonymity to established blockchain protocols(1.7b and 1.3b). As these gain dominance they become vital tools in hedging against Bitcoin volatility, while simultaneously creating exposure to larger Crypto-markets.
These players do not cannibalize current incombents, but instead shepherd the constructs of first-principles decentralization to several industries stuck in limbo.
Then there are the rising stars, coins such as 0x(443m) that powers decentralized exchange across asset classesâââfutures, stocks, derivatives, cats, you name it, BAT(243m) for advertisers, ENJ(37m), a gaming platform, and many others. These new players do not cannibalize current incumbents, but instead shepherd the constructs of blockchain and first-principles decentralization to old-world-orders of several industries stuck in limbo.
Ad-tech is a 272 billion dollar industry. If BAT can bring disruption to an industry with massive technological investment, imagine the potential for innovation in less tech-enabled areas.
One example of such an industry is Ad-tech. Ad-tech has suffered from click-bait, fraud and a congestion of players fighting for the same set of inventory since the time Google search launched Paid Per Click ads in the early 2000s. Present day Ad-tech uses its hold over technology and ad-inventory to run high-margin ad-campaigns, with a lack of visibility into their effectiveness in driving conversions. This creates an ecosystem where advertisers are overcharged for disengaged audiences. And audiences are served ads that are irrelevant at best and fraudulent at worst.
Wrong BAT. Source GeekTyrant.com
Enter BAT. Besides being the masked crusader protecting Gotham city in the dark of night, BAT is also an alt-coin. BAT or Basic Attention Token quite literally pays audiences to watch ads. As absurd as this sounds, it leads to behaviors such as users being more invested in watching ads, thereby incentivizing ad-relevance. It also pays content creators and publishers for their content, proportional to how well it performs. BAT is paid for by advertisers and delivers higher ROIs per dollar spent. It does this by cutting out the middleman and connecting them to more invested publishers and audiences.
Ad-tech is a 272 billion dollar industry with multiple opportunities for innovation and disruption. Even if BAT doesnât have all the answers, it is a concrete example of how we can start to bring fairness and transparency. It is the start of something that will grow and evolve. If something like a BAT through the blockchain can bring disruption to an industry that is already one of the largest areas of technological investment today, imagine the potential for innovation in less tech-enabled areas.
So crypto is promising. So it is the confluence of the smartest minds of our time. So diversification is our chance to win. But like any new new thing, it has a low signal to noise ratioâââremember the dot-com bubble? Currencies are easy to create, and the industry is littered with fraudulent ICOs due to lack of regulation. How does one make sense of it? How does one pick the princes from the frogs? The diamonds from the rocks.. You get the drift.
Princes from the Frogs
Crypto-Investing is made harder by rapid flux and the need for deep expertise.
As inevitable as it is, Crypto is in rapid technical flux. New blockchain protocols emerge periodically that make what was a breakthrough last year, the blockchain version of MS DOS today. Investing is made harder by the need for deep expertiseâââHow do transaction approval frequencies affect your ability to trade? What are the differences between private, public and federated blockchains? How do these translate to scalability, security, adoption and value? etc. For the investor, there is a need to respond quickly to changes as these develop.
Emberâs funds are designed to maximize returns without the need to track every nuance of the ecosystem. It does this by hosting the most credible minds to curate legitimate, high-return portfolios. One such mind is Marius Kramer, a top Quora Bitcoin writer, viewed over 3 million times. Marius is an expert in the technology, history and trends in Blockchain technologies. Ember provides Marius5, a managed fund that is rebalanced weekly by Marius. Through Mariusâs counsel Ember helps you diversify your holdings to not just the top alt-coins such as Ethereum, Litecoin, Ripple etc., it also gives you exposure to rising stars as BAT, Binance, ENJ etc. As users stay on Ember, Marius5 continues to react to changes in the markets by rebalancing their holdings to stay on top.
Portfolio rebalancing, principles such as buying low and selling high have been applied to traditional fund management for decades.
Portfolio rebalancing and the application of principles such as buying low and selling high are not unique to Ember and have been applied to traditional fund management for decades. What is unique is their application to Crypto, accessibility through a cell phone application giving users real-time responsiveness to market changes, the access to premium fund managers whose returns are tied to yours, and at the core of it, granting the user complete control of their assets.
Coinbase owns and takes custody of your assets, creating situations where you could be locked out of funds. Given market-volatility, this has made people nervous.
Support for diversification in Crypto has been around for a while. Coinbase launched Bundles that allow you to buy mixes of the top 5 currencies weighted by market capitalization. Their offering makes the mechanics of buying easier but is not catered toward returns. Further, being on Coinbase means Coinbase owns and takes custody of your assets, creating situations where you could be locked out of funds. Given the volatility of the market, this has made people nervous. There have been instances of Coinbase holding and not releasing fundsâââeven if these are few and far between, it is indicative of flaws in the holdings model.
Then there is San Francisco-based Bitwise, started by Silicon Valley and Walls Street bigwigs. Bitwise is an index fund that is managed, caters to high investment floors and also custodialâââit takes control of both assets and all investment decisions.
Exchanges get hacked. Mt. Gox was a 400 million dollar hack, and Coincheck was at 530 million. Ember circumvents that by giving you full control of your assets.
Ember works with your wallet, while Coinbase and Bitwise are custodians. Exchanges get hacked, Mt. Gox was a 400 million dollar hack, and Coincheck was at 530 million. Ember circumvents that by giving you full control of your assets and is impervious to attack. Granting you high-value indexes and hedging without loss of control.
From a team and technology perspective Ember has some of the sharpest minds in the space. They are a young and upcoming venture, incentivized to give users the best returns possible. Marius himself manages high value funds with minimums of 200k. Using Ember takes the minimums away and gives practically free access to a premium product. From an investment perspective itâs a no-brainer.
In conclusion
Blockchain and the disruption of Financial technology is a future you want to be part of.
Coming back to Warren BuffettââââDiversification is protection against ignorance, it makes little sense when you know what you are doingâ. As a corollary, diversification makes a lot of sense when the ecosystem moves at the speed of light and you rarely know what you are doingâââas is the case with Crypto.
And what is my answer to Uncle Bakshiâs question about BTC? Even if youâre unsure about Bitcoin, there is a wave of disruption in financial and Blockchain technologiesâââit is a future and you want to be part of it. Go slow, learn as you invest and hedge your bets. How?
In the words of your favorite millennialââââThereâs probably an app for itâ.
*all Market Caps and statistics are as of this writing.
Crypto Conservative: Old-time Investing in a Brave New World was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.