What are Cryptocurrencies

Cryptocurrency as an investment asset.

Types of Cryptocurrencies

Cryptocurrencies are a new asset class that have taken the world by a storm. These are digital assets, traded on tailor-built platforms as well as over-the-counter (OTC), that offer investors an opportunity to diversify their existing investment portfolio while having an opportunity to make exponential gains.

Cryptocurrencies can broadly be categorised into 5 different types:

  1. Currencies - assets that are meant to replicate or replace cash. Exampe: Bitcoin, Dash.

  2. Platform tokens - These are the native assets of a platform that allows apps and projects to be built on top of it. Example: Ether, NEO.

  3. Security Tokens - These replicate the characteristics of financial securities like equity, debt and derivatives. Examples include: Ripple, Iconomi.

  4. Commodity Tokens - These derive their value from an underlying asset, usually a commodity. Examples include: DigixDAO

  5. Stable coins - These assets represent digital ownership of a fiat (regular) currency, and are pegged to the value of that currency. Example: USD Tether, Gemini Coin.

Why Invest In Cryptocurrencies

Explosive Gains

Uncorrelated with traditional assets

Lower costs than traditional assets

Cryptocurrencies, being a very new and highly speculative asset class, has the potential to offer explosive profits to the investors. Our investments in Binance Coin, Ether and NEO for example returned 550%, 632% and 1015% to our investors. Such gains are unheard of in other, more traditional asset classes.

 

Cryptocurrencies have little, if any, correlation with traditional investment instruments, and therefore provide a great option for diversification.

The presence of high transaction costs make traditional markets very expensive for retail investors. Costs associated with trading eat away into any profits made from traditional investment. Cryptocurrency investment is low cost and open to all investors.

Optimal Cryptocurrency Investment Strategy

Investment Risks

How to Invest in Cryptocurrencies

Being a new, experimental and highly speculative asset class, investing in cryptocurrencies is subject to extreme market risk. The value of any investments can go to zero at any time. Indeed, in 2011, 2012, 2013 and 2017, the cryptocurrency market experienced crashes of 93.1%, 56.7%, 84.6% and 81.8% respectively.

Optimal cryptocurrency investment strategy therefore involves:

  1. Limited exposure to cryptocurrencies - Acinoxx recommends that our investors put no more than 5% of their total net worth (assets minus liabilities and pension and saving pots) in cryptocurrencies. 
     

  2. Invest in top cryptocurrencies only - investing in anything below the top 20 names dramatically increases the risks of cryptocurrency investments.
     

  3. Observe the market closely - given the abrupt nature of changes in the market, it is necessary to observe the market closely, and repond quickly to any adverse developments.
     

  4. Dollar-cost averaging - the greatest success in this space is likely to come from dollar cost averaging into the top assets over a long period of time.
     

© 2019 by Acinox

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