The advantages of passive investing have been well-proven and well-documented in traditional markets.
A while ago, before the launch of the 108 Token, we had written the following in our initial 108 Token blog post. We reproduce an excerpt below for context:
“As Napoleon pointed out, luck is everything. Almost; especially in matters of money and war. Specifically with respect to money management and investment returns, some of the greatest financial thinkers and philosophers of our current times concur. Burton Malkiel, in his book A Random Walk Down Wall Street, was among the earliest to question active managers’ abilities to outperform their indexes over time. The irascible but brilliant Nassem Taleb talks at length about the role of chance in his seminal book, Fooled by Randomness.
As multiple empirical studies have shown, passive management outperforms active management after fees, more often than not. Warren Buffet proved this with his now famous bet that the S&P 500 index would outperform a clutch of top hedge fund managers over a ten-year horizon starting 2008. John Bogle and the Vanguard experiment, and the subsequent ETF revolution firmly demonstrate the overall superiority of passive, index driven strategies over actively managed strategies, over the long run. We are witnessing a consistent outflow of funds from active to passive managers, in the US and increasingly around the world.”
You can revisit the full blog post here.
The first monthly rebalancing of our crypto ETF token, 108 Tokenhappened yesterday. Since our launch earlier this month, the NAV increased by ~30% while BTC was up by ~4% over the same period. The best performer in the portfolio was XRP (Ripple), returning 110% and VET was the worst performer, which lost 11%. At the time of rebalancing, XRP was the highest-weighted component with ~28% allocation ( this obviously came down post rebalancing).
For a good chunk of Crypto OGs (look it up, it is a term in crypto land), especially the bleeding-edge puritanical libertarians to whom fiat implosion and USD irrelevance is merely but an inevitable formality, crypto indices are anathema to this crowd. There is a mathematical chance that they might be right, and this time, it could truly be different. But given the direction that crypto is evolving in, as an addition to the existing asset classes, nicely complementing them rather than supplementing them, we think that the mechanics that saw index investing become preeminent in traditional equity markets will play out here as well. (Implementation and security issues around crypto indices that are mentioned as a response to this are a necessary but tangential discussion, that does not detract from the usefulness of passive indices).
The key thing to note here is the performance of the index vs the performance of BTC or ETH, the two gateway currencies. This might not always be the case and there will definitely be time periods when BTC alone might outperform at the expense of the alts, in which case the 108Token index will underperform BTC. But the point with the index is, in the long run, you are better off being passive. Passive indices make the most sense as the market matures and information asymmetry diminishes. Bitcoin and the leading cryptos are no longer abstruse, geeky concepts that require you to jump through hoops. Anyone, almost anywhere can access the mainstream cryptocurrencies. Irrespective of whether you are a first-time investor, or as a portfolio manager looking to add crypto to your portfolio for diversification, you should be considering a passive index strategy. In addition to the 108 Token, there are a few others that are coming up that you can and should consider, especially if crypto is not something that you live, eat, breathe. Needless to say, you know what our suggestion is, gun-to-head ;).
Oh btw, in a recent survey of around 10000 readers by a popular tech newsletter, when asked to choose between where they would allocate money, 69% went for Cannabis stock, with the remaining 31% choosing crypto. Pot, go figure!
“Tiger Global and Coinbase”According to Recode, Coinbase, the leading centralized US-based cryptocurrency exchange is in talks with Tiger Global for its next round of fundraise. The company is planning to raise around $500 million at a valuation of $8 billion. A successful deal will add the investment giant’s name to a growing list of other top investors including A16Z and USV.
“Giancarlo Speaks on Crypto”In an interview with CNBC, Christopher Giancarlo, chairman of the CFTC said that cryptocurrencies are “here to stay”. Although the head of the US derivatives regulator claimed that he sees a future for them, he clarified that he is still unsure if cryptocurrencies can substitute the US Dollar and that they could even take 10 years to become mainstream.
“Ukrainian Bill for 0% Tax on Crypto”On Monday, Yuriy Derevyanko, a Ukrainian lawmaker, provided his reasoning for a bill he introduced in parliament which includes provisions around how cryptocurrency is taxed. Derevyanko is a strong proponent of crypto and wants to have a 0% tax on digital assets till 2030 to promote a market which he calls “an engine for a new economy”.
“New NYAG Report”Citing a new report by the New York Attorney General, WSJ claims that price manipulation by automated trading accounts or bots is a growing concern for regulators. The cited report warns that exchanges’ continued oversight and lack of controls regarding this kind of abuse could risk the “integrity of the entire market”.
“Turning From the Wild West”Pointing towards the reduced volatility and compressed spreads in crypto markets, Bobby Cho, the Global Head of Trading at Cumberland, the crypto division of DRW Holdings, suggested that markets were now turning the corner as traditional financial institutions become more comfortable venturing into the new market.
“Collusion with Huobi?”Allegations which started spreading last week regarding possible collusion between EOS block producers such as Huobi have led Block.one, the developer of the protocol to release a statement acknowledging the allegations and ensuring the firm’s commitment to “ensure a free and democratic election process”.
Today’s NAV is ~$1.25, up roughly 27% since launch.
You can express your interest in 108 Token Series II here. This will be an open-ended, rolling vehicle. Also reach out to us if you are a market maker or a liquidity maker that is interested in a conversation around the 108 Token.
The Myth of The Infrastructure Phase by Dani Grant and Nick Grossman
Where Could Bitcoin Succeed as a Currency? by Cady VogeOvernight