Crypto-Priced High Quality ICOs as Shelter From the BIP 148 Storm

[TonTon]

The author, Dr. Nicholas Adams Judge, is a cofounder of RootProject. The other cofounder is Chris Place, a Y Combinator alum.

Risk management is an important field. Companies do not spend billions and academics don’t spend liftetimes working on it because the answers are all obvious. It’s an important field, too — the more volatile the asset space the more important it is.

Many crypto traders have taken large losses from the recent fall in ether. While ICOs are risky by their (current) nature, high quality ICOs that base their currency value on a temporarily high-volatility currency offer outsized relative risk-adjusted returns. While ICOs are risky, that risk does not correlate with ether or bitcoin fluctuations meaningfully, and therefore raises portfolio risk-adjusted returns.

An easy explanation, using our pre-ICO as an example: the price for our token, ROOTS, is .0001 ether. It’s the same price whether that ether is worth $400 or $150. So, the attractiveness of investing in ROOTS — or any ICO where the price is determined by another cryptocurrency, instead of a fiat currency — correlates negatively with the value of the underlying cryptocurrency.

What that means in terms of an investment portfolio that already has a large ether position is:

(1) the investor can exit an ether position now as if ether was still at $275;
(2) the new position reduces exposure to volatility, like that from the looming BIP 148 implementation.

It’s not as safe as holding fiat currency, but it offers the potential of high returns while greatly reducing exposure to BIP 148-related risk.

Of course, I am choosing our pre-ICO as a selfish example. But if you think this point is controversial, you have to make a case that BIP-148 poses an existential threat to ether — a weird position to make. Otherwise, you are disagreeing with “diversifying your risk is a good idea.”
If the goal of the investor is purely to avoid all risk, buy fiat currency. If the goal is to make the highest risk-adjusted returns that can be made, while sheltering a portfolio from BIP-148 risk, find high-quality ICOs priced in a cryptocurrency, particularly one that will hold its operating budget mostly in fiat currency.

Article originally published on Dr. Judge's Medium

[buwaytress]

To me, diversifying into an ICO token for the mere purpose of reducing exposure to BTC or ETH volatility, as the article seems to suggest, is little different from diversifying into an alt. If I were to hold onto my BTC, I'd at least still have the option of choosing any of the coins on any of the potential chains that may later result. This is an option I'd have to give up if I changed my holdings to an alt of ICO token, no?

[Chasoid]

There is no doubt that the Crypto-currency market is very young and has very high risks. It is also clear that minimizing these risks is the main task of the investor. Given that investments in this area are made for long terms, the price of the ETH is not particularly important here. But main here is that it is necessary to minimize these risks while choosing ICO. I want to say - if your product is really that good, then in the long run it will start to grow in relation to the ether and bitcoin. And then the crypto investor will finally get the benefit.

[Coffee2015]

I HODL some coins and also for new ICO fr advertisement,
it is for future so I HODL and Long.

Other crypto ALT is under consideration,... looking forward for next news.

[masterzino]

I partially agree.

Diversifying is very important. But lately there are lot of ICO bubbles and every invest need to read the whitepapers. Just to understand is there at least a slight chance for the project.

But reasonably chosen, ICOs are definitely reducing the risk of BIP 148 swings.