Cryptocurrency Downside Protection
By Sandra Quinn
This week saw the value of the US Dollar continue to drop with significant depreciation expected next year. Combined with how the Bitcoin’s USD value has driven the cryptocurrency value below $5,000 for the first time in 13 months, investors are seriously considering their options.
As the sell-off continues, cryptocurrencies versus USD plunge to prices, which haven’t been seen in 18 months. Similarly, USD market caps of crypto “platforms”, such as VeChain, NEO and EOS all tumble in a similar fashion.
Looking at crypto “businesses”, such as Binance and OmiseGO, their market caps have also plummeted in line with the fall of Bitcoin and Ethereum — the two kings of decentralized blockchain cryptocurrencies.
Crypto platforms and businesses, it seems, are not immune to a cryptocurrency sell-off, nor can they stand on their own two feet as fundamental operating businesses. Clearly, they are merely seen by investors as pseudo-diversification or mirrors of the two cryptocurrency kings.
Answering some fundamental questions, which investors may have, we spoke to the cryptocurrency and blockchain expert and CEO of Talketh, Brian Collins.
Do stablecoins offer downside protection?
Demand for stablecoins goes up, since they are used as an exchange-trading-pair in the crypto sell-off. Whether stablecoins can be exchanged for actual USD by investors is debatable. However, for now, they are perceived by some, whether rightly or wrongly, as a safe haven in this crypto-bear era.
That’s all well and good, but how do I, as a blockchain investor, actually protect my downside?
Simply put, investors should find a blockchain business or platform token to invest in which will achieve some of the following criteria;
(a) Generates USD revenues, because companies that only generate cryptocurrency revenues will always peg their market cap to cryptocurrency.
(b) Has legitimate banking arrangements, because companies need to deploy investor cryptocurrency contributions as USD in order to build their USD business.
(c) Lists their token on a crypto exchange, because you need an investor exit.
Some investors who are worried about their cash and investments might be overwhelmed by the figures involved, so Brian Collins has broken down the math;
Consider that you invest $20,000 to buy 20,000 $1 tokens today for 150 ETH (at $133 USDETH) and then, depending on your desired return on investment, you offer your 20,000 tokens on the exchange for $2/each, a 100% return.
In the interim, as the business generates USD revenues, these are the potential outcomes;
Scenario (A); Ether (USDETH) drops by 50% to $66; you sell your 20,000 tokens at $2 each and receive 606 ETH and cash-out to $40,000 at your preferred cryptocurrency exchange.
Scenario (B); Ether (USDETH) rallies by 50% to $200; you sell your 20,000 tokens at $2 each and receive 200 ETH and cash-out to $40,000 at your preferred cryptocurrency exchange.
Blockchain businesses that generate USD are immune to cryptocurrency swings.
Therefore, if you believe in the business’s fundamentals and management team, then investing your cryptocurrency with them is a very sound blockchain investment strategy.
So, consider investing at least part of your cryptocurrency portfolio, or part of what you have parked in stablecoin, into a blockchain business with USD revenues. Then list this blockchain token on an exchange at your exit price.
Brian Collins is the CEO of Talketh, a USD revenue business whose exchange-listed ERC20 tokens can be purchased at https://talketh.io/