Investing in portfolios of currencies
Portfolio management is a tried and tested methodology that has been in existence for over 50 years. The maths behind it has gotten more sophisticated with the rapid growth in computing. At WandX, our initial product is Olio, which enables users to create and trade in combinations of currencies. People would trade in a basket of currencies (we’ll call them portfolios from now on) only if they can meet their goals with it instead of cryptocurrencies (we’ll stick with cryptocurrencies for now instead of crypto-assets as we have mentioned in the other articles).
Most SIPs and mutual funds target the segment of the population, or I should say the segment of the population + the segment of a person’s mindset, where the person wants to put some money into an investment portfolio with low risk and reasonable reward. Most people who do invest in such funds would also have 5–10% of their SIP value as “loss averse” money, which means that they would be ok even if they lost it. Currently, there are very few instruments through which one can legally use this part of their money to bet on high risk portfolios.
I will digress into Modern Portfolio Theory for a bit. The portfolios on the part of the efficient frontier curve beyond the low risk limit is seldom used because these might represent risky stock or, gambling/betting returns. These are the portfolios that will be created and traded in WandX. WandX will allow users and fund managers to create such portfolios through either ETFs or creating a basket of currencies which can be traded with relatively lower risk but high return. The basket represents the middle part of the efficient frontier, while just cryptocurrencies and ICO tokens represent the far end of the frontier. We believe that this is an unorganized market that is currently catered to by lottery offerings, gambling on events, and sometimes even illegal ponzi schemes. We will cater to this market through WandX and the Wand token.
For anyone investing in cryptocurrencies and ICOs they have one of two options, either entrust their money to a friend who has been an investor in this space, or do the research and find out about the good ICOs and currencies in the market. Even with ICOs however, there are a lot of them which haven’t increased in value a great deal and many aren’t very liquid, hence investors may want to either invest a low amount in the coin, or hedge their risk across multiple ICOs.
At WandX, for our olio application, our target market is users who are familiar with the cryptocurrency market, and are looking to invest in non-standard currencies ( not BTC, ETH, XRP), but expect a higher reward for the increased risk. We enable users to instead diversify the increased risk of investing in new currencies through investing in our baskets (a combination of currencies or portfolio of currencies). These baskets have varied levels of risk associated with it, and it’s structure is described in more detail here. To see the different risk-reward trade off for different baskets, I have created a simple application using Shiny, R, and some basic HTML
This application is to see the different growth patterns for baskets over the last 40 days, as well as measure other financial risk parameters such as the Sharpe ratio. The objective is to show that trading a basket of currencies can in fact lower risk while maintaining the same levels of reward. The Olio app in WandX also enables increased liquidity of the lesser known ICO coins, hence enabling better price discovery for them.
Check us out at wandx.co to learn more!
Disclaimer — No part of this article, or any article or websites referenced in the WandX page, is investment advice.