Three “whales” of investment risk strategy at crypto currency market
Blockchain technology is gaining confidence with incredible speed. The financial services market is expanding its influence, creating modern mechanisms of raising funds for the development of start- ups. The changes are so fast, that they are taking place in front of us. In just three days there was a formation of a new paradigm of economic relations and it’s changed the classical approaches of the markets of services and goods.
According to the studies, the total amount of investments ion blockchain start-ups for 2017 has topped $6 billion.
For the first six months of 2018 the total attracted capital into blockchain-industry was $13.7 billion, that is twice the amount collected for the entire 2017. Such data was shared by the Swiss Crypto Valley Association (CVA). The research shows investors’ interest in the blockchain-industry development.
However, blockchain has some drawbacks so far. This fact is indicated by the specialists in various fields –from IT to finance. According to the opponents of blockchain, it is just a temporary phenomenon. And the hype around the technology is nothing but a concomitant factor characteristic of any system which begins to emerge in society.
Many centuries ago it was seemed much more effective to fire an arrow than to use a bulky and complex musket. It lasted so until quick-firing automatic rifles appeared. The breakthrough of blockchain technology is just around the corner. The technology promises to be global, without national boundaries, and what’s more important — without technological limitations. The latter advantage is especially important in conditions of the growth limit of classical markets.
Any system at the beginning of its development is the source of a great number of potential dangers: the lack of legislative regulation, the introduction of a new technological structure and communications. The above technology has produced lots of fast-buckers and speculators, which don’t care about the development of technologies, but for the sake of quick income they are ready for deception and theft.
According to Deloitte company research in 2017 at the platform for developers GitHub there were launched more than 26 thousand new blockchain-projects, but only 8% of them are still active. The 92% of start-ups were not active last 6 months.
Naturally, it would be wrong to say that all projects from these 92% are scam. Many business ideas fail because of the incompetent management, breakup of a team or the shortage of funds for the project realization. The investor, who doesn’t have any decision tools at ICO market, takes risks to lose money forever. Thus, the general damage from scam in 2017 was $1.3 billion.
The self-assessment of ICO projects from the point of view of risks is a challenge. The complexity of analysis is made worse with the fact that the classical risk management methodologies, which are widespread in real and financial sectors, are old and don’t meet the requirements of the changing environment.
The compilation of risk registers, which distribute various dangerous factors to groups, doesn’t have any results except for lost time and money. One of the founders of the Australian risk-management school, the author of ISO31000 and, probably, one of the first who invented risk registers in 1980s, Grant Perdue once said: “Risk registers can serve nothing but hamsters’ toilet. The risk-assessment is made not for the analysis itself, but for making investment decisions, achieving economic goals.
The investor’s main task at the crypto currency market is a dividend or profit from the funds in the project. For example, the investment strategy can be long-term. It happens to perspective innovative business-ideas, which require long-term development, testing, searching for the niche at the market of goods and services. Also, there is a speculative short-term strategy intended for getting quick income.
In both cases there is always an uncertain outcome and different risks, which are obstacles to the achievement of the goal. While long-term investments there is a high probability of the project team breakup, because very often people can’t stand a competitive fight, long months of stress and uncertainty. In case of speculative purposes a user can easily fall a victim to the promises of scammers to pay big profits and subsequently lose the money.
The articles about the necessity to analyze risks of loss from investing in hopeless blockchain projects are practically useless for investors while making decisions as well. Particularly, the most of them say that first of all it’s necessary to estimate a business idea from the point of view of the market outlook. How an ordinary person can do it, even when institutional ventures lose tens of millions of dollars believing in IT technologies, bioenergetics and other projects, the articles don’t explain.
The market needs a solid foundation of risk-analysis at the crypto currency market. What can it be?
The conception of risk-management for investors in the sphere of blockchain start-ups has a chance to exist only if it is based on three “whales”.
In the early 20th century the publisher and writer Maxim Gorkiy said: “ not knowing the past it is impossible to comprehend the meaning of the present”. The prediction of events without the data about any particular things, the identification of regularities between them are one of the basic criterion of a foundation. For instance, crypto currency rate, in which the assets of the project are nominated, influences token prices significantly and accordingly the last factor defines the demand for start-up assets. If an investor aims to survive and make money at blockchain market, he should know about the state of the most important factors that influence receiving a profit and the main thing — understand what information is essential. When a user is informed about the statistics of changes in key events at investment market, about the factors influencing the project development, he has a chance to turn his gambling hobby into profitable business.
In any sphere, including the sphere of investments, definite and expected result is obtained only with the pragmatic approach. For an ordinary user it is practically impossible to accumulate a huge amount of data, distribute it correctly, establish relationships and predict the result. Specifically for these purposes, they create effective technologies, which are based on the work of neural networks and capable to fix, process and analyze millions of data, and show a user the assessment results in the clear and convenient form. Considering the fact that not all the processes at the volatile market of crypto currency can be processed statistically, the technologies based on the artificial mind are capable of self-correction and self-study. The possibility of processing a huge amount of data in real time makes them a second “whale” of the foundation for investment risk-strategies.
Investment market of blockchain technologies is a dynamic environment, the factors of which change every minute. Yesterday’s assessment of the project can be very different from the current situation and can generate new risks. Therefore, even the right balanced assessment of ICO project at the start doesn’t guarantee success to the investor. In this situation, it’s essential to monitor the signals of key importance in the investment process and in the life cycle of a project. Such indicators can be Road Map ICO (road map of the realization of the basic stages of the project development with the concrete dates), token price on the exchange, user activity on the project site and many others. The point is to choose the key factors, units of measure correctly and monitor the ICO project development continuously. The regular processing of such amount of data is impossible for people, but new technologies can solve this.
You can think that risk-management in blockchain sphere is an automatic “black box”, which protect an investor from problems and mischiefs. This is not true.
To assess the risks of ICO projects you need to use modern technologies including those based on the work of neural networks, for the accumulation of statistic information, their processing and providing to users. Database and artificial intelligence warn an investor beforehand about the condition of key indicators of the effectiveness of the project realization according to the key risk indicators. If necessary, the system of risk-management can give recommendations how to cope with risk — leave the project, reduce investment volume, find co-investors and share risks. However, support systems of decision-making cannot replace the formation of the financial strategy by an individual. Only an individual considering his experience, risk-appetite, financial opportunities and busyness can make a good decision about project investments, the degree of participation in its realization and is responsible for the failure, or use a chance to succeed at crypto currency market. However, the disregard of modern technical instruments reduce the probability of a successful outcome of the activity at the newest markets signifivcantly.