Cryptocurrency hedge funds remain optimistic about the prospects of making massive gains in the digital asset markets, despite falling prices and negative investor sentiment over the asset class.
Seeking ICO-Like Returns
As reported by Bloomberg on Nov. 14, 2018, several crypto-funds continue to aim at triple-digit returns which were witnessed last year in the initial coin offering (ICO) frenzy. Their bets? Leading investments alongside huge players in “equity-like” offerings; which have seemingly created great interest among traditional investors.
For the uninitiated, the equity-like tokens are pegged to an underlying stablecoin as the latter’s usage increases. Meanwhile, stablecoins themselves have become one of the most-anticipated products in the cryptocurrency market, with uses ranging from exchanging value across borders without fears of volatility and conducting complex trading strategies in crypto-markets.
The equity-like tokens draw inspiration from “seigniorage,” a centuries-old French practice that allowed landlords and emperors to pocket gains from the difference of a coin’s face value and the amount used to mint it.
Travis Kling, the founder of crypto-hedge fund Ikigai, shares his thoughts:
“Investors in the equity-like tokens associated with a stable utility token are seeing that historical growth in Tether and thinking that if they can get even a portion of that, then obviously you’ll generate tremendous returns. That’s leading to a lot of the hype and lots of different competitors coming out right now.”
Complex Token Metrics
Kling notes gains of up to 46 times are possible if the right investments are made, and the underlying stablecoin becomes widely-used. Examples of such projects include MakerDAO, Basis, Havven, and Reserve; with all having a leading digital asset for investments and an associated stablecoin for trading and store-of-value purposes.
Investments in such projects are no joke either. In April 2018, New Jersey-based Basis raised $133 million from a fundraising round led by Bain Capital Ventures. The project leverages token supply using algorithmically using three tokens: one a stablecoin, second a “bond” token that is auctioned when amount needs to be contracted, and finally a share-token that pays dividends to investors as demand grows.
Meanwhile, few are raising questions about how a stablecoin and its equity-token would respond to a drop in prices or a market downturn. Presently, there are dozens of stablecoins on the market, with a dozen more in the works.
Cover Photo by Lindsay Henwood on Unsplash