Say NO to US Equities and YES to Security Tokens
WAIT!
Before you make a snap judgment on assuming I’m bearish on US equities and bullish on security tokens, hear me out 📣:
The title of this article actually doesn’t really make sense (shhh don't tell Leo).
So, when I say no to US equities and yes to security tokens, I am actually saying yes to blockchain technology and no to the current financial infrastructure.
A security token is defined as a digital representation of an asset recorded on the blockchain; therefore, all US equities can and will become a security token when the traditional markets adopt blockchain as its underlying infrastructure.
But, for now, the US stock market is still operating in its archaic, traditional ways. I am certainly not taking a shot at the SEC or any regulatory body, I understand that these alterations and amendments take time.
There’s a problem here though — a big one — one that is strong-holding the vast majority of the US population from realizing their financial potential.
Unless you are a high net-worth individual and/or have a connection to private investment opportunities, you will be limited to the public markets for investment (for the most part).
It is not because the government or some organization(s) of high-power are purposely excluding the public from investment alternatives; its because transactions of privately held assets are 10X more cumbersome and costly!
There is a saying that goes: “The rich get richer and the poor get poorer.”
This statement is extremely prevalent today and growing exponentially.
Why?
Well, as I just mentioned above, many of the lucrative investment opportunities occur when you have connections to these deals or have large sums of money yourself.
That’s why its incredibly hard to make your first million, but 10 times easier to make your second. I am not saying there is a wealth inequality issue in the world (although, some countries there definitely is), I am merely saying, if you come from a less fortunate family or jurisdiction, your opportunities are greatly limited.
With security token technology, it has the potential to eradicate or at the very least provide the opportunity to close this gap.
By democratizing, fractionalizing, and utilizing (too many “izing’s”😂) retail investor private securities exemptions, all investor demographics can also have a piece of the pie.
I am delighted to say, recently, some of the private securities exemptions have become more advantageous for US retail investors; such as, increasing the max fundraising amount for Reg CF from $1.07 million to $5 million, as well as the increase from $50 million to $75 million for Reg A+. On top of that, the SEC is doing a phenomenal job expanding the accredited investor definition, focusing more on financial literacy vs an individuals net worth — expediting the innovation timeline.
We are entering an era of rapid growth. With the underlying technology that blockchain harnesses, the financial world will become bigger, stronger, and more inclusive.
According to Bain & Company, “The potential for digital assets in private markets is much greater than in public markets.”
The private markets have been growing 4X faster than the public markets…and the crazy part about that is the private markets are illiquid.
I like to think about the illiquidity of assets like the people in that prison from the movie, The Dark Knight Rises.
The people being the assets and the prison symbolizing the clunky private market infrastructure.
When you unleash a person who has been trapped their whole life, what do you think they will do?
Or on the other hand, when you create liquidity for an illiquid asset thats been sitting idly for the past several decades, say the Empire State building, what do you think will happen to its value?
Something along these lines:
In essence, when assets become liquid, their value, in theory, should rise. When an asset has liquidity — more often than not, it trades higher than when its illiquid due to the fact of the attractiveness liquidity provides — your money.
You think Bitcoin is a big deal?
Think again.
Security tokens dwarf Bitcoin.
“Okay, you talk a big game. I see why security tokens offer more to the world, but tell me about their returns.”
I thought you’d never ask!
In the year 2020, there were a total of 26 security tokens with live-trading data on stomarket.com (including 22X, which delisted themselves from OpenFinance this past December).
If you invested in the Security Token ETF* at the start of 2020, your portfolio would have outperformed the US equity markets by ~43%!
YES, you read that right… ~43%
The Security Token ETF* was up +59.84%; whereas, the average of the Dow Jones, S&P 500, and NASDAQ were only up +16.78% (which is still an incredible return for any year).
Imagine how much better off your life would be if you invested in security tokens.
You know that thing your significant other has been nagging you about for the past year?
Welp, guess what, you could have prevented the nagging for another year.
Maybe next year a little diversification will be involved 😂
*The Security Token ETF is a hypothetical ETF that invests in all security tokens with live-trading data on stomarket.com. If you have followed closely, we have added several security tokens to our platform throughout the year. To account for this, each month the fund reallocates the percentage invested in each asset. In essence, throughout the year, each investor in the fund was equally invested in each security token. Additionally, to ensure accuracy, we removed the security tokens 22X and iAM from our data collection process, due to lackluster trading activity, as well as the 22X delisting.
2020 Return Break-Down:
- Security Token ETF: +59.84%
- NASDAQ: +32.19%
- S&P 500: +14.64%
- Dow Jones: +3.51%
- Indices Average (1/3 Weighted): +16.78%
The Security Token ETF outperformed the Dow by 56.33%, S&P by 45.2%, and the NASDAQ by 27.65%!
Break-Down per Security Token:
- OSTKO: 159%
- BCAP: 142%
- SPiCE: 124%
- TZROP: 109%
- Audubon: 49%
- Andover 34%
- 18276 Appoline: 33%
- Schaeffer: 25%
- Lesure: 18%
- CEO: 17%
- Fullerton: 16%
- MPS: 9%
- Patton: 5%
- MERJ: 2%
- ASPD: 2%
- TSFT: .51%
- 10024–28 Appoline 1: .11%
- Minervest: 0%
- Oosten: 0%
- ARCA: 0%
- SBC: -23%
- Marlowe: -24%
- LDCC: -60%
- PRTS: -60%
Security token investors be like:
Let me paint a picture, so you really grasp the power here.
Firstly, I am by no means saying liquidate your US equity positions, I am saying educate yourself to become more aware of alternative investment opportunities, in order to maximize your wealth and returns.
Here’s Why:
For clarity purposes, let’s look at two investors in the market. Both investors have allocated $1 Million USD to either US equities or the Security Token ETF at the start of 2020.
Investor 1: $1 Million invested in US equities
- Final value at end of 2020: $1,167,790.44
- Percentage return: +16.78%
Investor 2: $1 Million invested in the Security Token ETF
- Final value at end of 2020: $1,598,403.66
- Percentage Return: +59.84%
Final Results: Investor 2, who invested into the Security Token ETF, would have performed almost ˜43% better than Investor 1.
Take a look at the graph below to visualize it:
Look at the graph above and tell me what you see happened to security tokens whilst the US markets were in turmoil.
Look closely…
What do you see?
You see stabilization.
You see positive returns.
You see a hedge.
Security tokens were up 24% from February to April.
US Equity Markets were down 10% from February to April.
In other words, security tokens outperformed the US Markets by 34% whilst the world was experiencing high anxiety and uncertainty.
If you invested even 1 to 5% of your portfolio in security tokens, you may be in better hands financially today.
Whether or not you believe blockchain technology will be adopted by the masses, you are doing a disservice to yourself and your clients by ignoring security tokens. Security tokens may be a nascent and speculative asset class, but the returns speak for themselves.
If you are a registered representative with a BD or at the very least an interested party, one of the most important actions you can take is hedging your risk.
What if some of your clients want to invest in security tokens and you don't know what they are? Before you know it, you are losing clients left and right back living in your parents basement thinking to yourself, "Where did it all go wrong?"
None of us knew what 2020 had in store, just like how no one knows what will happen in 2021.
Maybe aliens will take over the world, anything is possible 👽
Diversification and awareness is key.
Thank you for reading my analysis on security tokens and the US equity markets. I am going to be continually analyzing this data over the coming months/years to observe any trends in the relationship between security tokens and the global capital markets.
A special thanks to Aneesh Shinkre and Jason Barraza for the help on this one! I wouldn't have been able to do it without them!
Any questions/concerns/suggestions, please email me at Jonah@stomarket.com :)
Everything in this report is for research purposes only. Nothing in this report should be taken as financial advice or as an inducement to purchase or sell any security. Nothing in this market report should be used as legal advice. Always do your own research before making any decisions regarding financial transactions of securities.
