An introduction to Crypto baskets
In a highly volatile and unpredictable cryptocurrency market, risk management of your assets via diversification and hedging is of key importance. But, developing an expertise or investing in time to research and filter through hundreds of cryptocurrencies could be a daunting task for any investor. The risks to a portfolio can be broadly classified into two categories
- Systematic risks that arise out of common market factors such as the macroeconomic landscape, regulatory situation, geographical stability etc. These risks are inherent, they cannot be diversified, but they can be minimised by hedging.
- Unsystematic risks arise due to specific or internal reasons related to the project such as slow execution, competition, regulatory issues etc. These risks can be minimised by portfolio diversification.
In this ever-changing crypto landscape, there are smarter ways to invest and minimize these risks. One such way is by investing in Crypto baskets.
Types of Crypto baskets:
Crypto baskets are cryptocurrencies segregated and bunched together on basis of investment type, asset type, industry type etc. Crypto baskets allow traders to invest in a bunch of cryptocurrencies without having to managing them independently. Crypto baskets can be classified on the basis of -
- Currency Tokens — These are native blockchain assets that are intended to be used as money like Bitcoin, Ripple, Monero, Litecoin, Dash.
- Utility or Protocol Tokens — These tokens are native to decentralized networks designed with a specific use-case in mind. e.g. decentralized storage and decentralized asset exchange are types of use-cases for which networks and the tokens are built. Examples are Golem, Dentacoin, Hcash
- Platform tokens — These are required to use general purpose decentralized networks that support a wide variety of possible applications. Platform tokens are often used as fees to access the platform’s functionality. Examples are Ethereum, Ethereum Classic etc.
- Security tokens — This crypto token derives its value from an external, tradable asset. Security tokens are required to meet a lot of regulatory obligations, and their classification creates the potential for a wide variety of applications, like it can be used to issue tokens that represent shares of company stock. Polymath aims to be a platform for security tokens.
Traditionally, sector funds allows investors to bet on the appreciation of a particular industry category, they see potential in. They help mitigate unsystematic risk via portfolio diversification.
Cryptocurrencies can be segregated into a number of sectors based on their usage or industry like Distributed Storage, Security, Currency, dApps, Crowdfunding, Artificial Intelligence etc. We will take a look on 5 sectors:
- Prediction markets — These are markets where participants play against the outcomes of events indicated by the probability of a certain outcome, that is indicated by the market price. Decentralized prediction market are built on a decentralized ledger, making them more flexible, secure, and a number of other advantages.
- Distributed storage — Distributed storage assets create a market for storage space that is distributed globally across participating computers in a network. The value of a distributed storage will rise when more computers participate in the network and there is more storage space.
- Dapp network — Decentralized Application (dApp) networks provide protocol which allow many dApps, to run on a decentralized peer-to-peer network. The value of a dApp network is a function of the dApps it can support.
- Decentralized exchange platform — Decentralized exchange platforms allow the conversion of one crypto-asset to another without any intermediary. The biggest benefits of these platforms are the fact that your crypto is in your hands and not in the hands of a centralized platform.
- Lending platform — Blockchain lending platforms disburse consumer loans make the process of disbursing these loans more democratic. They generally hold your crypto assets in return for cash based loans and are seeing a lot of demand.
Secured Automated Lending Technology (SALT) has an enviable problem if its recent Medium post is to be believed. The…news.bitcoin.com
Apart from the above, there are a number of sectors where investments can be made depending on an investors research and exposure. However, sector funds are directly exposed to risks posed at a particular sector, therefore, it is important to evaluate any sectors before making investments.
Markets are like seasons, moving in cycles, they rise and then fall, and then they do it all again. Few sectors are inherently associated with market cycles meaning these companies do well when an economy is growing and undergo correction when the market slows down. But not all of them follow the market trends at the same time. While one might be rising with the market, another might take time or follow a different cycle. Therefore, it is essential to keep a track and rotate these investments.
Sector rotation is an investment strategy that provides investors with a discipline to invest in favorable sectors while avoiding those under pressure with minimum active involvement.
We at Palettes are creating palettes of crypto investments, essentially from crypto baskets which will make it easier for you to passively invest in cryptocurrencies. The best part, you can directly invest in your preferred exchange by integrating Palettes with it thus reducing the hassle of moving your money around too much.
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