With dozens of ICOs launching every week, blockchain startups are struggling to differentiate themselves in a sea of imposters.
One such company is PentaCore, which bills itself as “The Ultimate Cryptocurrency Investment Fund.”
Headed by their Harvard-educated CEO James Nitze, PentaCore’s goal is to create an actively-managed fund of cryptocurrencies, similar to traditional mutual funds.
Sounds like a great idea, right?
Before cryptocurrency became the hot new investment, there were index funds.
Vanguard, the investment fund famous for its low fees and intuitive investing platform, popularized index funds as a way for non-finance professionals to take advantage of compound interest without paying fees to money managers.
Based on the idea that the market outperforms most actively managed index funds on a long term basis, Vanguard inadvertently pushed mutual funds into obscurity in favor of their low-fee alternatives.
Now that smart people with legitimate investors have realized the huge potential of the cryptocurrency market, they seem to be making the same mistakes all over again.
Who's yo market?
What makes a company like PentaCore, with their rockstar team and advisory board, think that the average investor wants to 1) buy a mutual fund which underperforms compared to the market 2) pay fees for active management, and 3) invest in "fake internet money"?
As mentioned earlier, index funds routinely outperform the stock market. In a given 10 year period, mutual fund managers who outperform the market generally fail to do so in the following ten years.
Furthermore, the average investor is in an age bracket that is not tech savvy. People with money to invest into a 401k generally are not millennials or younger - which just happens to be the age bracket which are the easiest customers in the cryptocurrency and ICO market.
In order to sell a cryptocurrency mutual fund, PentaCore has their work cut out for them.
First, they need to convince their aging demographic what the rest of the world has failed to do: that crypto is a legitimate asset and not a scam.
Anyone who understands how cryptocurrency works has no interest in paying fees to a third party just to invest in "funds" made up of coins which they can buy on one of the hundreds of cryptocurrency exchanges out there now..
Despite all this, I still believe that PentaCore will hit the hard cap for their ICO and go on to be a successful company.
Why? Because institutional investors want so desperately to believe that they can cash in on the hysteria by tapping into the huge pool of people who don’t understand cryptocurrency at all but have lots of money to invest.
Ok great Mr Balloon Popper - so what's the solution?
So what do?
Set up a traditional cryptocurrency exchange
First of all, don’t try and reinvent the wheel. Crypto exchanges facilitate billions of dollars worth of trades per day and take a small % of each one.
With their pedigree and institutional support, I find it hard to come up with a reason why PentaCore wouldn’t throw their hat in the ring.
Yes, there is competition. But competition implies that there is money to be made.
With millions of people willing to buy coins that already exist, why not make it easy for them and use your resources to create an intuitive platform for them to get their fix?
Why leave money on the table when your business model is so similar to one that is wildly successful, yet missing the key ingredient in favor of an unproven one?
Focus on current crypto investors instead of older people who are too lazy to use Google
There are two types of people in this world: people who understand the basic idea behind crypto and those who don't.
Like virtually any other question, this can be answered with a few Google searches and an hour of research.
People who are too busy or lazy to do this are unlikely to risk a significant portion of their investment portfolio into something as obscure, confusing and volatile as a crypto fund.
While I don’t think that PentaCore should abandon their current business model entirely, I think a pivot is warranted.
Furthermore, anyone who has any experience trading cryptocurrency is not going to pay a money manager fees just to be able to purchase a coin which represents a blend of other coins for the sake of convenience.
Why not just buy the coins yourself on an exchange?
To create a product that literally 0% of current crypto buyers will use is short-sighted and a huge mistake. Why ignore the ravenous market that already exists in favor of one that is inherently suspicious of the product they're trying to sell?
Integrate their actively managed funds/coins into the exchange
Creating a coin that is an aggregate of other coins is an excellent idea.
Two well-known exchanges, Binance and Kucoin, have their own coins which fit this description.
There is no reason that PentaCore couldn’t do the exact same thing.
In fact, they could create multiple funds and list them as coins. They could have one “blue chip” coin, one “index fund” coin, one ICO coin, one “privacy” coin, etc.
Each of them would be made up of a certain % of whatever their analysts decided.
This would differentiate PentaCore from other exchanges which only list existing coins.
If PentaCore REALLY wanted to revolutionize the market, they would give the user the ability to create their own coins. Imagine if users could log in to their platform and create their own token that was 10% BTC, 50% XMR and 40% low market cap altcoins?
Users could design the coins and put them up in the "user marketplace." The system could be gamified to encourage participation. Users could create content and add it to the site describing why they designed the coin the way they did.
To sum it all up, PentaCore’s business model is not terrible.
They’ll be successful, they’ll make money and will probably even create some r/Cryptocurrency frontpage-worthy partnerships.
But why leave so much money on the table? Current crypto investors foam at the mouth at the prospect of a new coin that can bring them profits.
Why not give the people what they want?
What do you think? Is PentaCore's business model solid or should they make some changes?
Let me know in a comment below!
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