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Cryptocurrency investing has seen incredibly high investor interest over the past 10 years with the market cap across all cryptocurrencies exceeding the $2trn. Undoubtedly, the hype around investing in cryptocurrency has been fuelled by the unprecedented returns generated from this asset class. Take Bitcoin as an example, had you invested R10,000 in Bitcoin 10 years ago, your investment value would be in the region of R35m today.
Bitcoin is not an isolated example, over the past 12 months, two thirds of cryptocurrencies on one of South Africa’s largest exchanges generated returns in excess of 100%, of which a quarter far exceeded 500%. In terms of losses, only 14% of cryptocurrencies listed on the exchange produced negative returns, the worst of which was a loss of 31%.
So which cryptocurrency is the next Bitcoin? Well, that’s close to impossible to answer. What the above statistics demonstrate is that the answer may lie in having a diversified portfolio of cryptocurrencies.
Alternative investment specialists, Jaltech, have identified an opportunity to provide this much needed diversification through a cryptocurrency investment which offers exposure to an index of cryptocurrencies.
Andoni Nicolau, the head of digital investments and one of the actuarial scholars at Jaltech states that “cryptocurrencies represent the next evolution in finance, investors should undoubtedly have some exposure. A % to 5% allocation is a reasonable starting point. At these sizes risk and volatility, from a downside perspective, is manageable while also exposing investors to cryptocurrencies which could 10x or 20x their value.”
If one considers that 10% of cryptocurrencies on South Africa’s largest exchanges produced returns in excess of 1400% during the past 12 months, of which the highest exceeded 6,000%, it’s clear that a diversified portfolio increases one’s chances of gaining exposure to top performers.
Andoni supports this view and states that “Retail investors will not find an investment in the market with an asymmetric return profile which cryptocurrencies offer. Where else are you able to invest 1% of your portfolio with the potential of it being worth 10% to 20% of your portfolio in years to come?”
Jaltech’s team of actuaries have undertaken a process to define a set of rules, which produce a basket of cryptocurrencies that offer investors broad exposure to the sector through a diversified portfolio across a number of cryptocurrencies.
In selecting the cryptocurrencies, Jaltech implements a strict set of criteria to filter out cryptocurrencies which have poor historical data, low levels of security and/or insufficient liquidity. A few examples of the criteria include:
- Minimum market cap: Only cryptocurrencies/tokens that have achieved a value of $2.5bn or greater are considered for the basket.
- Globally available: The cryptocurrencies must be traded on three or more cryptocurrency exchanges.
- High liquidity: The cryptocurrencies must be frequently traded so that there is sufficient liquidity.
- Unpegged: The basket excludes cryptocurrencies which are pegged to foreign currencies or whose values are derived from other assets.
- Secure custody: The cryptocurrencies must be capable of being removed from an online exchange and stored in a secure virtual vault. This is essential to mitigate hacking or cyber-crimes.
In support of the basket, Andoni states that “Our intention was to capture a diversified cryptocurrency basket which we believe should be the default cryptocurrency investment option for investors. The index has been constructed to give investors exposure to cryptocurrencies which are widely used, are cryptographically secure, exhibit quantifiable decentralisation metrics and continue to demonstrate increasing adoption.”
In order to make the investment accessible to investors, Jaltech’s cryptocurrency investment has a low minimum investment amount of R10,000 and can be made by completing a simple application form.
For more information on Jaltech’s cryptocurrency investment, click here.
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