When you work in the blockchain space, you'll hear one question again and again, whether it's from your barber, your friends, or a social media DM:
"What crypto should I invest in?"
People are looking for a magic bullet after hearing about others striking it rich in the space — they want in on the action. You can't blame them, as common wisdom says to invest your money rather than lose it to fiat inflation.
It makes sense, then, to look for alternative investments like crypto, but with the overwhelming wealth of info out there — some better than others — where should you possibly start? At this point, many people turn to who they see as influencers, people in the know, or people who just might have that magic bullet crypto to invest in.
It's impossible to consider crypto investment and not come across ICOs, which changed the capital formation landscape forever due to their accessibility.
ICOs somewhat lost fashion to IEOs, which are essentially identical, but are run by cryptoexchanges instead of issuers. After these came the STO, or Security Token Offering, aiming to create an efficient and compliant means to raise capital.
While we've covered some of the ways to invest in crypto (like buying a coin, or investing in an ICO, IEO, or STO), this doesn't answer our original question of what crypto to invest in. But here's the thing:
In traditional markets, it's blatantly obvious that you don't invest in just one single asset. Going "all in," or putting 100% of your portfolio in a single asset, is essentially gambling. Whether you're a VC, real estate investor, or even just retail, all sources agree that smart investors diversify their portfolios.
But in the crypto scene, it's like this wisdom hasn't yet fully permeated the investor ethos. A quick Google search will show you that many are adamant that a single cryptocurrency will come to reign supreme.
Now, you may believe that a certain currency, whether it's Bitcoin, Ether, or some alt-coin, possesses Unique Selling Propositions that increase its likelihood of mass adoption above the rest, but that still doesn't mean you should gamble your finances with that belief, it just means that you should reflect that with a greater allocation of that asset in your portfolio.
Even in crypto, it should be common sense to hold many coins and tokens, not just one. In the "Investing in Blockchain" guide, I talk about this basic premise:
"Smart money is invested in uncorrelated returns."
Not only should your investment portfolio be diversified within one asset class, but some assets should be uncorrelated as well. Cryptocurrencies offer a great opportunity here, because they're low beta assets. As an investor, you don't even need to bet on a crypto becoming very successful for it to be a valuable part of your risk/return strategy.
However, this still implies that you've invested in several cryptocurrencies, so what's the best way to go about doing that?
CRYPTO20 by Invictus Capital was the first tokenized crypto index fund. What they do is fairly straightforward (although the how isn't): It autonomously tracks the top 20 cryptocurrencies, akin to the S&P 500 tracking the top 500 US companies, dynamically adjusting its portfolio to mitigate risk and volatility.
Index funds bring the benefit of lower fees than managed funds, while consistently beating actively managed funds. C20 is the token you can invest in, which is where the tokenized fund part comes into play. C20 represents your share of the fund.
Remember the whole spiel on needing asset diversity? Well, funds like CRYPTO20 let you invest in a diverse crypto portfolio in just 1 token - no longer do you need to keep track of a ton of different private keys and accounts just to diversify.
While C20 was the first, it's not the last, and other tokenized funds include CRYPTO10 Hedged (similar idea, but top 10 coins), the Margin Lending Fund, the Hyperion Fund, and an upcoming Emerging Markets Solar fund.
Clearly, tokenized funds are here to stay, with a variety of options already on the market to choose from. A Deloitte report covers how the tokenization of assets is disrupting the financial industry, saying that "the way we invest in assets could be about to fundamentally change."
Well, they were proven right.