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Crypto20 and the Rise of Cryptocurrency Index Funds

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It has been more than two months since Crypto20 concluded its public crowdsale. Over that period, the value of its tokenized crypto index fund has fluctuated dramatically, reflecting broader movement in the digital currency market. For passive investors, the fund offers a simple and cost effective way to gain exposure to the world’s leading class of cryptocurrencies. It’s often said you get what you pay for. In the case of Crypto20, the underlying token is usually priced at a significant premium over the fund’s net asset value (NAV).

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Crypto20: An Introduction

The Crypto20 index fund provides investors with a single asset in which to track the performance of the cryptocurrency market. The portfolio, which launched in October, provides exposure to the top-20 cryptocurrencies by market capitalization, allocating a maximum component weighting of 10%. The fund buys the 20 largest cryptocurrencies and re-balances its position weekly based on the market’s performance.

Investors gain exposure to the fund by purchasing the C20 cryptocurrency, which is normally marked at a significant premium over the NAV price. Although some have argued this points to significant speculation in the market, it may be justifiable to those who are willing to pay a premium for convenience. After all, purchasing 20 cryptocurrencies separately, storing them in different wallets and rebalancing the holdings weekly is a time consuming process that an index fund can take care of much more efficiently.

According to the C20 fact sheet, the fund charges a flat annual fee of 0.5%. There are no other fees associated with the fund and traders can exit at any time.

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Indexing is slowly breaking ground in the crypto market. In addition to C20, Bitwise recently launched a cryptocurrency index fund holding the top 10 digital assets. A platform by the name Bit20 also appears to offer a similar product as C20, although the re-balancing is done less frequently. There’s reason to believe these assets will continue to grow as investors adopt conventional assets to play the volatile cryptocurrency market.

Grayscale’s Bitcoin Investment Trust is another traditional asset vehicle that provides exposure to the crypto market, although its entire focus is bitcoin. The fund was conceived in 2013 and has more than $1.7 billion in assets under management (AUM). Total shares outstanding are 175,984,800, according to the fund’s website. Its annual fee is 2%.

Fund Performance

The Crypto20 fund has been extremely volatile since its inception – a feature that cryptocurrency traders have come to expect. The fund’s total value peaked above $164 million U.S. in early January as the cryptocurrency market soared to record highs. Since peaking, it has declined by more than 50% to $70 million.

From a NAV perspective, the fund peaked at $4.05 but is now at $1.72.

The C20 token has followed a similar trajectory, although the coin has only been trading for a few weeks. It was down more than 17% on Monday to $2.13, having reached an earlier low of $1.98.

Trade volumes over the past 24 hours reached $2.8 billion, according to data provider CoinMarketCap.

Disclaimer: The author has no exposure to Crypto20. 

Featured image courtesy of Shutterstock.

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 165 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Grayscale Launches New Fund for Top Cryptocurrencies

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One of bitcoin’s largest asset managers is giving investors more ways to play the cryptocurrency market. On Wednesday, Grayscale announced a new crypto fund designed to track the market’s largest and most liquid assets.

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Digital Large Cap Fund

Officially called the Digital Large Cap Fund, Grayscale’s newest investment vehicle provides direct exposure to bitcoin, Ethereum, Ripple XRP, bitcoin cash and Litecoin. The fund employs a market cap-weighted methodology and rebalances quarterly. This means the fund’s underlying assets will be evaluated every three months, possibly removing some cryptocurrencies for others.

At its inception the fund had $4 million in assets and 400,000 shares outstanding.

Grayscale offers three other digital currency funds with exposure to bitcoin, Zcash and Ethereum Classic. Its flagship Bitcoin Investment Trust was conceived in 2013 as a way to bring the digital asset class under a traditional investment vehicle. The Bitcoin Trust has more than $1.7 billion in assets under management and nearly 176 million shares outstanding.

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The investment vehicle is more likely to appeal to institutional traders and passive investors keen on exploring cryptocurrency without having to buy and sell individual assets or store them in a wallet. Although the fund will still be subject to large fluctuations, it offers more convenience for those who seek long-term exposure to crypto assets.

The Rise of Crypto Funds

Several startups have raised initial coin offerings (ICOs) inviting investors to participate in their cryptocurrency fund. Crypto20 is one of the most prominent examples. The fund, which launched in October, provides exposure to the world’s top-20 cryptocurrencies based on market capitalization. The holdings are then rebalanced weekly. Bitwise is another notable example of a crypto index fund that offers broad diversification benefits.

The rise of indexing strategies suggests cryptocurrencies are entering mainstream consciousness. Combined with the recently launched bitcoin futures contracts courtesy of CBOE and CME, investors have more opportunities than ever to play the market using traditional asset classes.

Fund managers have tried unsuccessfully to list bitcoin exchange-traded funds (ETFs). Two U.S. companies ditched their listings last month, citing complications with the Securities and Exchange Commission (SEC). Efforts to get bitcoin ETFs listed have been on ice ever since.

A cryptocurrency-based ETF would make bitcoin and other tokens as accessible as stocks, possibly leading to higher demand.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 165 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Artificial Intelligence

The End of Human Money Managers

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Quantitative Easing by central banks around the world has led to dramatic changes in the money management industry over the past six years. Not only have we seen increasing regional differences, but stock picking has also become more difficult as the money injected into the markets by central banks has lifted pretty much everything, regardless of valuation and the future potential of the asset.

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Investors have become impatient and highly demanding as a result of years of low interest rates. Old mutual funds are being swapped out for new, better ones at a record pace as investors hunt for higher ROI. Passive income has become a trend, and ETF’s and automated investment strategies are getting more and more popular as a result.

How do money managers attract capital?

There are three main factors that determine how much capital a money manager is able to attract from investors:

  1. Track record
  2. Strategy
  3. Technology

Changes in any of these factors can have a big impact on investors’ willingness to let the fund manager keep the money they have already invested with him, or receive new money.

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Technology has been a very important driver over the past few years. Data-driven, or quantitative funds are gaining an ever-increasing market share in the money management space. This is happening because more and more people are realizing the obvious benefits that this type of money management has to offer.

Investors increasingly prefer the robustness, speed, and predictability that automated money management can provide. When it comes to robustness, we are referring to both the physical and psychological aspect of it.

Humans vs. robots

Humans are pretty much the opposite of “robust,” in the true sense of the word. Our emotional state on any given day can make us react to things in different ways than we otherwise would have done, potentially leading to critical mistakes for a trader.

As humans, we may miss trading opportunities in the market because we came in late, took a day off, or simply didn’t pay attention at any given moment.

Robots are obviously not affected by fatigue and lack of focus. For example, a robot can monitor the stock or cryptocurrency market and trade just like a human trader would do, with the only difference being that the former (arguably) does it better and never needs to rest.

Thanks to the high computing power available today, robots can collect, verify, analyze, and react to opportunities long before a human will even understand that such opportunities exist.

Data-driven approach to fund management is taking over

A recent ranking by Institutional Investor Magazine revealed that out of the world’s 100 biggest hedge funds, five of the top six spots were held by data-driven funds.

On first place was Ray Dalio’s Bridgewater Associates with $122.3 billion under management. In 2016, Bridgewater grew the amount of money under management by 17%.

Renaissance Technologies, the company known for having hundreds of mathematicians, physicists, and coders on their payroll, came in fourth with $43 billion.

Two Sigma, which is also well-known for using technologies like AI and machine learning, came in fifth with $39 billion under management. Their increase from the year before was 28%.

According to Barclays, $500 billion are now invested in purely data-driven funds, while JP Morgan claims that data-driven trading strategies accounts for a whopping 90% of global trading volumes in stocks.

The core objective of any money manager is always to follow the money. That’s why we are seeing a race right now by the big players in the industry to use words like “technology-driven,” “artificial intelligence,” and so on. Whether or not that is true is not always a concern for them.

Money managers are destined to unemployment

Those who are really in trouble because of this huge change are the money managers themselves. Most of them will likely lose their jobs over the next few years. There is simply very little need for their very expensive services anymore, as robots are able to do the same thing in a much cheaper and more consistent way.

As legendary investors Jim Rogers predicted a few years ago, the stock brokers will become broke and the farmers are going to be driving Lamborghinis. Maybe there will finally be some truth to this.

Featured image from Pixabay.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.2 stars on average, based on 21 rated postsFredrik Vold is an entrepreneur, financial writer, and technical analysis enthusiast. He has been working and traveling in Asia for several years, and is currently based out of Beijing, China. He mainly follows the stock and forex markets, and is always looking for the next great alternative investment opportunity.




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Altcoins

Cryptocurrency Investing: What is a Healthy Portfolio and Where Does Bitcoin Stand

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Over the past 12 months, year-to-date, bitcoin has fallen behind Ripple, Litecoin, and Ethereum in terms of price growth.

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Bitcoin’s Year-to-Date Return

Bitcoin still has recorded a massive price increase of 14-fold, from $1,000 to $14,000. But, other cryptocurrencies in the market such as Ripple have recorded a staggering 163.5-fold increase in value. Merely a $1,000 dollar investment in Ripple in the beginning of 2017 would have led to a profit of $162,500, while an investment in bitcoin would have led to $14,000.

Yearly bitcoin price growth provided by Coinbase

The top three cryptocurrencies in the market bitcoin, Ethereum, and Bitcoin Cash have less potential to increase by large margins in comparison to cryptocurrencies with market valuations of less than $10 billion. Unless the entire cryptocurrency market surges exponentially and the valuation of the market grows to many trillions of dollars by the end of 2018, in the short-term, it is unlikely that leading cryptocurrencies including bitcoin, Ethereum, and Bitcoin Cash will record an astronomical surge in value, by more than 100-fold.

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Billionaire hedge fund investor Mike Novogratz, Fundstrat’s Tom Lee, and highly respected financial analyst Max Keiser have established an interim price target of bitcoin at around $50,000, which would place the market valuation of bitcoin at $1 billion. Solely in terms of price growth, a $50,000 target would be a 3.5-fold increase in value over a 12-month period.

Consequently, many investors in the market have started to diversify their investments into other cryptocurrencies, and the trend has been evident in the decline of the dominance index of bitcoin. Three cryptocurrencies at the top of the market are considered as reserve assets or safe haven assets. They have low risk but low returns. That is, a low return relative to other cryptocurrencies in the market. Bitcoin, Bitcoin Cash, and Ethereum have drastically outperformed all of the currencies and assets in the traditional finance sector year-to-date.

Investors like CNBC analyst Brian Kelly and cryptocurrency-focused hedge funds spread out their funds across many cryptocurrencies with strong technologies, active developer communities, solid markets, and applicability.

John McAfee for instance, has emphasized the necessity of private or anonymous cryptocurrencies like Dash, Monero, and Zcash, as in the future, more investors will seek out for cryptocurrencies that are capable of providing a high level of confidentiality.

Combination of Low-Risk and High-Risk Cryptocurrencies

A healthy portfolio of cryptocurrencies would be a certain amount of funds spread across both strong low-risk cryptocurrencies like bitcoin, Ethereum, and Bitcoin Cash, and high-risk cryptocurrencies with lower market caps like Monero, Zcash, and Dash.

Squeeze, a prominent cryptocurrency trader, noted that price is not an accurate representation of the size of a cryptocurrency. Rather, investors should consider the market valuation of a cryptocurrency to decide its potential and space to grow.

“For new investors in crypto, think in market cap. Not price per coin. Market cap gives an estimate of the potential growth. Price per coin doesn’t mean anything as the supply for each altcoin differs $0.1 per coin doesn’t mean it’s cheap $100 per coin doesn’t mean it’s expensive,” said Squeeze.

An example of a high market cap but low price cryptocurrency is Ripple. The market valuation of Ripple is at nearly $40 billion but its cryptocurrency remains at $1. Meanwhile, Dash, Litecoin, and Monero have tokens valued at more than $300. Yet, their market valuations are substantially lower than that of Ripple.

For investors and bitcoin holders that have seen significant returns over the past few years, diversifying funds across unique and potent cryptocurrencies could lead to better returns in the short-term.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.4 stars on average, based on 3 rated postsJoseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.




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