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.
July 8, 2019
If you are wondering whether or not cryptocurrencies should be considered when building a diversified investment portfolio, you may find it helpful to consider what some prominent investors are saying about the space. See below for various quotes from technologists, investors, and other investment professionals.Short Summary: Investors below think at least 1% of net worth should be invested in cryptocurrencies.
Chamath Palihapitiya, founder and CEO of Social Capital, suggests “there’s an asymmetric upside to crypto investments”. An asymmetric payoff (also called an asymmetric return) is the set of possible results of an investment strategy where the upside potential is greater than the downside risk. Chamath also believes that 1% of net worth should be invested in cryptocurrencies. For more info on Chamath’s views, watch his interview on CNBC here.
In a Forbes article a number of investment professionals gave their views on crypto asset allocation:
David Martin, CIO at Blockforce capital, suggested "a 3-5% allocation of crypto is appropriate" for a "young professional".
Joe DiPasquale, CEO of BitBull Capital suggested young investors should consider allocating “anywhere between 0% - 5% of the[ir] portfolio", with annual portfolio balancing.
Marouane Garcon, MD of Amulet, suggested that "anywhere around 5-10%" of one's entire portfolio is reasonable.
Mati Greenspan, senior market analyst at eToro, said "depending on the size and makeup of the portfolio as well as the tolerance for risk," an investor could put "between 6 and 18%" into cryptocurrencies.
Scott Weatherill, chief risk manager of B2C2 Japan, said that "I think 20% is very reasonable, however I would also add that it's best just to buy BTC and ONLY BTC.
James Turk of Goldmoney, suggests that investors will continue to pivot away from assets with counterparty risks into haven commodities like gold and Bitcoin.
Disclaimer: The above content shall not be construed as financial, investment or legal advice, nor should this guide be interpreted as endorsing any specific products, services or digital assets. Please obtain your own advice from legal and financial experts, perform your own due diligence, and consult the relevant regulations prior to buying or selling cryptocurrency.
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:
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.
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.
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.
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.
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.
June 12, 2019
Just a couple of weeks ago our CEO, Joseph Weinberg, sat down with Off The Chain Podcast host Anthony “Pomp” Pompliano.
Off The Chain is a notable podcast that interviews some of the most respected names in crypto and Wall Street to find out how investors and technologists think about digital assets.
In this episode of Off The Chain, Joseph talks about the early inception of Bitcoin in 2010, living abroad, and building interoperable, permissioned blockchains and the beginnings of Paycase Financial (parent company of Paycase Markets)
Click on the link below and take a listen to hear Joseph speak on remittance, banking, layer-two scaling solutions for bitcoin, KYC and regulation.
May 22, 2019
Over the last two weeks we have seen the price of bitcoin increase over 30% from under $6,000 to +$8,000 USD. A lot of our clients are asking us why BTC’s price has escalated so quickly, and whether or not this strength will continue. Below are four arguments that we believe may explain the end of crypto winter and the bloom of crypto spring.
There have been a number of recent announcements relating to institutions entering the cryptocurrency space. Fidelity, for example, is said to be offering cryptocurrency trading within a few weeks. Additionally, in a recent interview with CNBC, Meltem Demirors (Paycase advisor and investor) suggested retail investors may be part of the reason behind BTC’s rise.
With the ongoing US/China trade war creating volatility in the financial markets, investors are looking for new asset classes - such as cryptocurrency. Historically, Bitcoin’s correlation with traditional equity markets is low, potentially reducing an investor’s portfolio’s volatility.
Next year, BTC’s block reward (paid to miners for mining new blocks) will be halved from 12.5 bitcoins to 6.25 bitcoins, meaning that fewer new bitcoins will be generated. Countdown clock found here.
Over the last year, the number of transactions on BTC’s network have increased significantly, and more merchants are accepting BTC each day. For example, Starbucks, Whole Foods and others are now accepting BTC via an app named Spedn. Fundamentally, we believe that an increase in adoption and use will place upward pressure on BTC’s price.
Interesting: Here is a great video to watch as our friend Anthony Pompliano explains bitcoin markets to Kevin O'Leary https://youtu.be/SmjUvdJdlDM
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.