Crypto-Priced High Quality ICOs as Shelter From the BIP 148 Storm
The author, Dr. Nicholas Adams Judge, is a cofounder of RootProject. The other cofounder is Chris Place, a Y Combinator alum. Their nonprofit’s pre-ICO just passed 162% of its goal and is open until July 28th, 2017. An easy way to understand their model is here.
Risk management is an important field. Companies do not spend billions and academics don’t spend liftetimes working on it because the answers are all obvious. It’s an important field, too — the more volatile the asset space the more important it is.
Many crypto traders have taken large losses from the recent fall in ether. While ICOs are risky by their (current) nature, high quality ICOs that base their currency value on a temporarily high-volatility currency offer outsized relative risk-adjusted returns. While ICOs are risky, that risk does not correlate with ether or bitcoin fluctuations meaningfully, and therefore raises portfolio risk-adjusted returns.
An easy explanation, using our pre-ICO as an example: the price for our token, ROOTS, is .0001 ether. It’s the same price whether that ether is worth $400 or $150.
The lion’s share of our operating budget, by the way, will be held in fiat. It’s a choice we are forced to make by current volatility.
So, the attractiveness of investing in ROOTS — or any ICO where the price is determined by another cryptocurrency, instead of a fiat currency — correlates negatively with the value of the underlying cryptocurrency.
What that means in terms of an investment portfolio that already has a large ether position is (1) the investor can exit an ether position now as if ether was still at $275; (2) the new position reduces exposure to volatility, like that from the looming BIP 148 implementation. It’s not as safe as holding fiat currency, but it offers the potential of high returns while greatly reducing exposure to BIP 148-related risk.
Of course, I am choosing our pre-ICO as a selfish example. But if you think this point is controversial, you have to make a case that BIP-148 poses an existential threat to ether — a weird position to make. Otherwise, you are disagreeing with “diversifying your risk is a good idea.”
If the goal of the investor is purely to avoid all risk, buy fiat currency. If the goal is to make the highest risk-adjusted returns that can be made, while sheltering a portfolio from BIP-148 risk, find high-quality ICOs priced in a cryptocurrency, particularly one that will hold its operating budget mostly in fiat currency.
In the coming days, RootProject will be making important announcements about their first blockchain developer hires (just made), the nearly 700 person slack team we built in a single week (!), and all the other progress we’ve made.
