Investing in cryptocurrencies is inherently risky in that prices are prone to swings of 10% or more over a period of a few days. However, this high risk has brought with it tremendous returns.
In fact, the crypto asset class has been crowned the fastest growing investment category of the last decade providing an annualised return in excess of 220%. Over this past weekend, the total crypto market cap reached an all-time high of $2 trillion which means that the crypto-asset market is slightly larger than oil producer Saudi Aramco valued at $1.86 trillion and Amazon valued at $1.5 trillion.
Bitcoin’s market dominance is described as the ratio between the market cap of Bitcoin to the rest of the cryptocurrency markets. For many years, while Bitcoin was far and away the largest cryptocurrency - and one of the few in existence - its dominance was much closer to 100% than it is today. However, the Bitcoin dominance dropped significantly as new cryptocurrencies were created.
A year ago, Bitcoin sold for $7 100 (R132 000) and accounted for 68% of the total crypto market’s value. This week the price surpassed $59 000 (R900 000), a gain of more than 560% over 12 months, but now the largest cryptocurrency only accounts for 56% of the total crypto market’s value demonstrating the steep growth in the rest of the crypto market.
What’s going on here?
Simply put, smaller cryptocurrencies (called altcoins) such as Ethereum have outperformed Bitcoin. The reason for this is that Bitcoin itself took the blockchain and used it for a single purpose: a peer to peer, decentralised electronic cash – that’s it.
Ethereum (ETH), Polkadot (DOT) and Cardano (ADA) employ a blockchain just like Bitcoin, but the crypto projects aspire to do much more: they are competing to become general-purpose blockchain infrastructure that is capable of running complex operations in the form of smart contracts. Smart Contracts use the blockchain to allow peer-to-peer transactions without the need for third-party verification and are responsible for the boom in non-fungible tokens and a new crypto-based financial system called decentralised finance or DeFi, where innovative ways of lending, borrowing and earning interest on cryptos – all outside the traditional financial system – are already taking place.
What’s the outcome of having a more multi-purpose blockchain?
In 2021, clearly investors see potential in these cryptocurrency projects.
Ethereum’s native ETH token recently hit a new all-time high of $2,081 providing a spectacular 851% over the last 12 months. Pokadot and Cardano, the 7th and 6th largest cryptocurrencies which are challenging Ethereum for smart contract blockchain dominance, are up 1330% and 2446% respectively over the last year.
How do I safely invest in cryptocurrencies and have I already missed the boat (because prices have already gone up so much)?
We posed these questions to Sean Sanders, founder and CEO of crypto investment company Revix who is CFA Charterholder and received notable investment backing in 2019 from JSE-listed financial services group Sabvest.
“On the question as to whether it is too late to invest in cryptos, the funny thing is that I was asking myself the same question back in 2016 when Bitcoin hit $800 from $300 the year before, and then again in December of 2017 when it hit $20,000. I believe we are still at the early stages of massive worldwide adoption of cryptocurrency comparable to the internet in 1995. If you consider that slightly more than 100 million people have some exposure to cryptos out of a total global population of more than seven billion, we still have a long way to go. Right now, all of the Bitcoin in the world is worth roughly 10% of gold’s total value and in my personal opinion within 10-years the tables will turn, and gold will be only 10% of Bitcoin’s value. And, that’s not even taking into account the other cryptocurrencies that could one day become bigger than Bitcoin.”
He continues, “The rate of crypto adoption is growing exponentially. As adoption continues to grow, so the prices of Bitcoin, Ethereum, Cardano and other cryptocurrencies are expected to grow.”
As to the safety of investing in cryptos, Sanders says price volatility is a feature of most cryptocurrencies (excluding stablecoins or asset-backed tokens), and price swings of 10-20% a week are not uncommon and are a function of an emerging technology and industry.
“At Revix, we do not believe anyone should be investing in crypto beyond what they can afford to lose. For most people, a small 1% to 5% allocation of your total net worth to crypto can result in significant improvement to your overall portfolio returns over the long-term,” explains Sanders.
Building a balanced crypto portfolio
Revix offers three ready-made crypto “bundles” to help reduce some of the risks of investing in this new asset class by offering immediate diversification across the top cryptocurrencies.
“Buying a single cryptocurrency can be easy if you know which one to buy but many people are not confident enough to know which cryptocurrency to back, and even the pros only get it right about 50% of the time, so buying a bundle – rather like an EFT or unit trust – takes the guesswork out of it.”
Unlike the pure plays on the rise of Bitcoin or any other single cryptocurrency, Revix’s crypto bundles offer investors a broader basket of cryptocurrencies that passively track the growth of the broader crypto market. The concept has merit for investors as a unique way to profit from the next Bitcoin while significantly reducing the concentration risk (the specific risk associated with any single cryptocurrency).
“Just as you would diversify your stock portfolio to reduce the risks of exposure to a single stock or industry, we do the same with cryptocurrencies,” says Sanders.
Revix’s three crypto bundles:
The Top 10 Bundle, spreads your investment over the top 10 cryptocurrencies as measured by market cap, with no crypto having a weighting of more than 10% in the bundle. The bundle covers more than 83% of the total crypto market, enabling you to closely track the overall performance of the crypto asset class.
The Smart Contract Bundle, which spreads your investment over the top five cryptocurrencies involved in “smart contracts”. which are contracts built on blockchain technology to allow users to build applications on the blockchain in the same way that Android and IOS operating systems allow apps to function on your smartphone. These “smart contract” cryptocurrencies include Ethereum, Polkadot, Cardano, EOS and Tron.
The Payment Bundle, which tracks the top five cryptocurrencies that are looking to revolutionise money and how value is transferred. This includes cryptocurrencies like Litecoin, Bitcoin Cash, Stellar and XRP, none of which has more than a 20% weighting in the bundle. These cryptocurrencies are the frontrunners in the race to develop a new global payment system that is instant and secure.
Revix also offers direct exposure to Bitcoin, Ethereum, USDC (a “stablecoin” fully backed by the US dollar), and PaxGold (an asset-backed token backed 1:1 by physical gold).
Revix investors, which include both newbies and professionals, can buy and sell cryptocurrencies and unit trust-type Bundles through the Revix online platform. Even if you’ve never owned Bitcoin, you can create an account with no obligations, and learn about cryptos using Revix’s helpful tools and features. The platform is mobile-friendly and makes it easy for anyone to buy, sell or hold cryptos just like they would stocks.
The minimum starting amount for any investment is only R500 so the platform is accessible to everyone.
Sign-up is free, there are no monthly fees, with a customer support team to guide you through. You can sell your crypto investment at any time and withdraw your funds: there are no lock-up periods like there are with other investment funds.
How Revix rebalances its bundles to maintain the correct portfolio weightings
Each of Revix’s crypto bundles are re-balanced monthly to ensure the portfolio weightings remain consistent. This is done to ensure that:
- Revix investors hold the largest cryptocurrencies as measured by market capitalisation, and
- That the cryptocurrencies within their bundles are equally weighted so that investors are as diversified as possible.
Their monthly re-balancing is a fully automated process that buys and sells cryptocurrencies on your behalf using Revix’s proprietary algorithms based on predefined rules.
For example, the rules of the Top 10 Bundle ensure that no single cryptocurrency will hold more than a 10% weighting. As prices move during the course of a month, the stronger performers in the bundle will end up with a higher weighting than 10% at the end of the month. These ratios are adjusted by Revix’s algorithm at the end of each month to restore 10% portfolio weighting for each cryptocurrency.
The same applies to the Smart Contract and Payment Bundles, where no single crypto can have more than a 20% weighting in the portfolios.
“The monthly reconstitution and rebalancing of the bundles is considered a re-weighting and is performed by our algorithms,” says Sanders.
“The Revix research and portfolio management teams monitor all of our crypto bundles to ensure they are operating effectively and tracking their underlying cryptocurrencies. Our team performs a comprehensive review of all significant cryptocurrencies within the bundles. As part of this process, we re-evaluate all major cryptocurrencies’ eligibility per trade volumes and potential risks, and programmatically recalculate market cap rankings to ensure we’re capturing the most highly valued projects on the market. We also engage in periodic reviews of our bundle methodology to ensure that we are following the best practices in the crypto investing marketplace.”
This monthly re-balancing and constant evaluation of the constituents of the various bundles ensures investors have exposure to the next winners in the crypto space. Those cryptos that do not perform will eventually be excluded from the bundles as their market cap declines.
“Remember, the crypto market changes very quickly and is far more dynamic than any other investment market out there. Over the past five years, only four cryptocurrencies have managed to stay in the top 10 (Bitcoin, Ethereum, XRP and Litecoin) and only one was able to significantly grow its market share (Ethereum, which grew its market share from 8.95% to 12.31%).
“Owning a Revix Bundle, like owning a diversified low-cost ETF or unit trust in the stock market, is the smartest and arguably the lowest-risk way to get exposure to the broader universe of cryptocurrencies,” says Sanders. “The Revix Bundle approach ensures that way you will always have exposure to the best stories within the crypto market without taking on too much risk.”
For more information about Revix, visit www.revix.com.