📈6. Holding Risk & Past Returns
Holding Risk(s):
The fund's primary holdings, following the principle buying strategy, will primarily consist of cryptocurrencies which are known to be extremely volatile.
The crypto market is high-risk and speculative, and it is important that buyers understand the risks before buying.
Due to lack of backing, the holdings of this fund are subject to extreme market volatility and may lose all of their value. Investors must understand that investment into the fund opens up the risk of potentially losing their whole investment value.
Outlined below are some of the inherent factors which present a risk to the fund’s holdings:
Unexpected changes in market sentiment
Supply & Demand shock
Trading volume
Correlation of the whole Crypto Market
Weak or nonexistent correlation with equities markets
Price volatility
Trading fees & Gas fees
The fund has built-in automated provisions which attempt to safeguard the fund’s holdings. These are outlined in Section 2: Internal Operations: Investing Pool
Past Returns:
This past analysis is conducted in-house and has not been verified by financial institutions. Past returns are not to be used to gauge future returns. This data is for informational purposes only and is not intended to be used for investment purposes.
Below, in table 1, and chart 1, the top 5 cryptocurrencies by market cap are compared to the SP500 Stock Market Index over four years. Key indicators are analyzed to distinguish the risk factor of buying in the crypto market.
It must be noted that data for these currencies was taken right after the 2017-2018 bull cycle of the crypto market. Since then the crypto market has experienced volatile periods and it's unclear how long this pattern will last, as the data shows that the top 5 cryptocurrencies by market cap are almost 5 times as volatile as the SP500 index.
Overall, the top 5 cryptocurrencies over four years averaged a positive weekly return. Standard deviation must be taken into consideration, however, indicating that the average was not consistent.
Past returns indicate a volatile, and time-sensitive positive market return. For this reason, to reduce risk, increasing time exposure is extremely vital. The automated annual rebalancing will also aim to capitalize on gains and minimize losses. This will ensure that a turnover rate is present, and funds are liquid. This goal is further aided by the monthly strategic reserve rebalancing, which aims to have enough funds to maintain liquidity and cover necessary expenses.
The fund will have the potential to hold more than five tokens at a time, and therefore will have greater exposure to the market than in the data illustrated above. For this reason, returns may be more volatile, especially if the community decides to invest in smaller capitalization coins.
It is essential for users to understand that fund development expenses will be deducted directly from the strategic reserve, affecting the overall fund value. The development team expects an initial loss of value in the first beta quarter of operations, as some holders will cash out their shares. This can be expected as a natural shedding of risk-averse buyers. Those who choose to continue to hold will be rewarded with an increased ownership share as ownership is concentrated in the fund.
During this first quarter, the resale market is expected to generate funds, 100% of which will be deposited into the fund on a monthly basis. These funds will aim to ensure that the investment pool value & strategic reserve are growing in proportion, which in turn feeds the monthly profit distribution between dividends and the strategic reserve. After the first quarter of operations, the fund should begin to stabilize, as royalties decrease and stabilize, while share selling is expected to follow a normal curve distribution.*
*These statements are just estimates by the Development team and are not guarantees of future outcomes.
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