Welcome to our Markets Blog

July 24, 2019

In our previous post below we shared some investors’ views relating to crypto in the context of one’s portfolio. In short, many believed that crypto should be at least a small percentage of an investment portfolio - those views ranged from around 1% to as high as 20%.

While the obvious argument towards inclusion of crypto in one’s portfolio is for the potential upside, the less obvious benefit is overall risk reduction. This may seem counter-intuitive; after all, crypto’s price fluctuations are generally more volatile than those of traditional investments (i.e. equities and debt). If that’s the case, then why does adding crypto to one’s portfolio potentially lower the overall risk? The main reason is that crypto’s correlation with traditional assets has historically been quite low - see below for more detail.

According to Investopedia, "a perfect positive correlation means that the correlation coefficient is exactly 1. This implies that as one security moves, either up or down, the other security moves in lockstep, in the same direction. A perfect negative correlation means that two assets move in opposite directions, while a zero correlation implies no relationship at all."

Imagine a hypothetical portfolio consisting of two equities, A and B. Let’s assume the correlation between these assets is exactly 1. One day, asset A decreases by 50%; given the perfect positive correlation, B will also decrease by 50%. Now let’s add a new crypto asset to the portfolio, asset C, with -1 correlation to both A and B. In the above example, while A and B decrease by 50%, C would have increased by 50% (given its perfectly negative correlation), increasing the return, and lowering the portfolio’s overall volatility.

In reality, it is rare to find assets that are perfectly positively or negatively correlated. So historically, what has BTC’s correlation been vs. traditional assets? According to Blockforce Capital, Bitcoin’s correlation with the S&P 500 from Jan 2015 through Oct 2018 did not exceed 0.25 (see image below). Interestingly, the correlation was negative for approximately one year in such time frame.

Similarly, according to The Block, Bitcoin’s correlation with the S&P 500 during January 1, 2017 through April 17, 2019 was 0.08, with EOS having an even lower correlation.

As you can see, by adding crypto to your portfolio, it may reduce overall volatility, and potentially increase returns.

May 30, 2019

You may be wondering - why would you use an Over-the-Counter (OTC) desk, compared to a traditional cryptocurrency exchange for buying/selling crypto?

Here are the Paycase Markets Five S’s of OTC benefits:

1 - Service

Purchasing cryptocurrency can be challenging. But by working with a trusted crypto broker, you will likely find the process simple especially with OTC desks that pride themselves on a concierge or white glove service. You’ll have a dedicated broker knowing your name, appetite and experience level. Chances are you get to speak with your broker over the phone. It’s highly unlikely you will get to know the names of traders on exchange where most of the high volume exchanges have millions of daily active users. Furthermore, no matter the market, upside or downside, your broker will always be able to help buy or liquidate your crypto, same day.

2 - Size

OTC desks that have access to deep liquidity pools can accommodate any trade size. When you request a trade, your broker will span out the order across their network and provide you a quoted price within minutes. Traditional exchanges typically have restrictive maximum deposit, withdrawal and/or trade sizes, this is especially true for trades exceeding 7+ figures USD.

3 - Slippage

When buying/selling crypto with a trusted OTC brokerage desk, your order will be executed at one price largely due to deep liquidity pools across many sources. When trying to trade cryptocurrency at a traditional exchange, a larger order could potentially move the price unfavourably, by driving through the bid/ask order book depth, thereby increasing your entry price and decreasing your profits, otherwise known as slippage.

4 - Security

Your crypto or cash goes directly into your wallet with OTC, the way it should be (download our guide to learn how to secure your wallet). Unless you are actively trading on exchange, leaving your crypto on exchange dormant is not recommended as exchanges tend to be targets of attack since they are a centralized store of cryptocurrency. Exchanges generally keep approximately 5% of total customer funds in a hot wallet, the balance (95%) stored offline in a cold wallet. Furthermore if your exchange account is compromised, your crypto could be withdrawn.

5 - Speed

In most cases, you will receive your crypto the same day as the cash leaves your wallet (and vice versa). Typical OTC trades can complete within an hour or two. Although filling an order can take only seconds with a broker, most of the time expense is due to moving fiat over traditional bank payment rails like bank wires. When comparing to exchanges, withdrawals can take much longer or you may face paying a premium for expedited bank wires. Furthermore depending on your exchange account setup, you may face limits for daily fiat withdrawals. Depending on the trade size, it could take days for you to receive your full amount due.

Paycase Markets is part of the Paycase Financial group of companies.

Paycase Financial is also known for Paycase Remit, our disruptive cross-border remittance platform that has been operating since 2016.

Our team is comprised of cryptocurrency experts and industry pioneers. We also advise governments and other large institutions on writing regulations around blockchain technology and implementing related solutions, via our consultancy group Paradym Global (i.e. voting, identity, and land titles). See here for a recent example of our work.