MakerDAO, a lending protocol and stablecoin issuer, has voted in favor of a proposal to expand the amount of United States Government bonds held in its portfolio by 150%, from $500 million to $1.25 billion. This would be a significant increase. This action is being taken with the goals of diversifying its liquid assets and earning a net yearly yield in the range of 4.6% to 4.5%. The remaining $500 million of USDC in the PSM will be handled by decentralized finance asset manager Monetalis Clydesdale. MakerDAO has plans to deploy $750 million of the USDC in the PSM to acquire further US Treasury bonds.
The bonds will be acquired with equal maturities, monthly, and over the course of a period of six months; the total number of slots will be 12, and each slot will be worth $62.5 million. After taking into account the costs of custody, the proposition is anticipated to result in a net yearly return of 4.6% to 4.5%. The income stream of MakerDAO can potentially benefit from an increase in trading expenses. This action will result in the continuation of Monetalis Clydesdale’s management of a current allocation of $500 million from the United States Treasury, which has been in effect since October 2022.
On the other hand, some people who took part in the governance forum had reservations about the proposition. They pointed out that MakerDAO has not yet received any money from Monetalis for the first half billion DAI, and they claimed that questions asked in Maker’s Discord and governance forum were not responded swiftly, which did not provide sufficient time to evaluate the proposal.
The failure of Silicon Valley Bank on March 11 caused widespread fear throughout markets and led to the depeg of a number of stablecoins, including USD Coin (USDC) and Dai. In response to this, MakerDAO said that its community was working on suggestions to convert its stablecoin exposure to money market instruments, such as U.S. Treasurys, “with the objective of diversifying DAI’s liquid collateral.”
Wells Fargo Investment Institute, a registered investment adviser and wholly owned subsidiary of Wells Fargo, recently released its fifth publication in its digital asset and cryptocurrency educational series in August, as seen on Sunday, August 7.
The investment advisory firm published the report to ensure that new investors see the comprehensive picture of the digital assets industry and therefore take advantage of investing in the new asset class.
As per the new report, Wells Fargo considers digital assets as a transformative innovation, just like the internet, cars, and electricity.
The investment adviser described cryptocurrencies as the building blocks of a new large digital network that moves money and assets. That network is open for anyone in the world to use. Wells Fargo said infrastructure is emerging to support this new Internet of Value.
Since traditional finance is starting to embrace open networks, adopting digital assets is expected to accelerate over the coming years.
According to Wells Fargo, early adopters are set to gain profitability (economies of scale), while those late comers could lose something that the internet has taught the world for 40 years.
The adviser stated that while there is an investment thesis behind digital assets, the industry is still young to become mature, and therefore, many investment risks remain.
The main risks facing the industry are additional regulation, technology and business failures, limited consumer protections, price volatility, as well as operational risks associated with handling and storing digital assets, the bank elaborated.
Wells Fargo said cryptocurrencies have evolved into a viable investment asset. Long-term supply and demand trends further support industry growth and compress price volatility. Crypto has therefore emerged to play a role as portfolio diversifier. The bank classifies cryptocurrency or digital asset investment as an alternative investment.
Crypto Increasingly Gaining Mainstream Adoption
In 2020, several crucial events attracted increased mainstream usage in transactions and accelerated the maturation of crypto markets. For example, banks received regulatory permission to custody cryptocurrencies. Regulators took additional steps to extend a legal and oversight framework that have helped solidify crypto as investable assets.
In 2020 and 2021, more operating companies such as MicroStrategy,the Block Inc., (formerly Square), Tesla, among others, began allocating cash to digital assets and cryptocurrencies.
This year, crypto continues to gain ground as an investment despite the market crash. According to a recent Morning Consult data intelligence and market research firm survey, about 24% of American consumers own crypto.
Research shows that clients are increasingly asking investment advisors about crypto – with 94% of financial advisors receiving questions about the asset class from clients in 2021.
Cryptocurrency should be part of clients’ portfolios as long as they can afford to lose that money and they are going to keep it for a seriously long period of time, according to Suze Orman, a US personal finance expert.
Tether Holdings Ltd, the blockchain startup that is in charge of the USDT stablecoin issuance and operations, has come out yet again to address the growing rumours about the composition of its reserve base.
Per the update on Wednesday, the stablecoin issuer said it is unlike what is currently in circulation. It holds no Chinese Commercial Paper as a part of the security to protect the integrity of the USDT. The firm warned against the impacts of false news, which can literally do more damage to the ecosystem than even cyber threats.
“The spreading of false information is the biggest threat to the cryptocurrency industry that currently exists. It is a threat of the same concern as scams, hacks, or cyberattacks because the spreading of false information risks not only the reputation of the industry but also each and every member of the community,” the company wrote in the update.
It clearly outlined that its total Commercial Paper exposure has been slashed from 30 billion as of July 2021 to approximately 3.7 billion nowadays. The firm said it plans to reduce the commercial papers to about 200 million by the end of August this year and its ultimate goal is to take the number to 0 latest by the end of November this year.
Maintaining a robust reserve has always been a major requirement for running a stablecoin like the USDT. While it has been bedevilled by a number of controversies with regulators in the past, Tether is now committed to publishing a regularly updated report about its stablecoin reserve portfolio.
Circle, the issuer of the second largest stablecoin, USDC, has also joined this trend as both stablecoin companies have continued to face scrutiny following the collapse of TerraUSD (UST) algorithmic stablecoin. Regulators are determined to prevent any other such mishap, and the oversight on these platforms has grown over the past couple of weeks.
Allocating funds to crypto investment positions has been shown to have a positive impact on the performance of diversified investment portfolios.
According to a research study by crypto asset management outfits Iconic Funds and Cryptology Asset Group, the ability of crypto investments to positively impact the performance of investment portfolios cuts across several asset allocation models.
This ability to improve the profitability of diversified investment portfolios is even despite the volatility of cryptocurrencies, especially the recent market crash that occurred in May.
The research study titled: “Cryptocurrencies and the Sharpe Ratio of Traditional Investment Models” examined changes in the risk-return profile of several portfolio allocation methods due to the addition of cryptocurrency assets.
This risk-return examination was conducted via measuring changes in the Sharpe ratio — the measure of excess returns earned for holding a volatile asset — when crypto positions were included in the different asset portfolio models.
With crypto supposedly an uncorrelated asset class, the risk-reward performance of investment portfolios should improve with the addition of cryptocurrencies despite their apparent volatile price movements.
By assuming a passive investment strategy, the study mapped the changes in the Sharpe ratio for traditional portfolio models with the introduction of crypto exposure against a reference index with no cryptocurrency allocation.
Source: Cryptocurrencies and the Sharpe Ratio of Traditional Investment Models
To investigate the impact of increasing the crypto positions for each portfolio model, the study also rebalanced the cryptocurrency allocation on a 1%, 3% and 5% basis.
Detailing its findings, the study stated: “This report finds that the addition of cryptocurrencies to any portfolio covered had a positive impact on the returns as well as the risk-reward performance of the portfolio,” adding:
“This finding holds despite a significant correction in the crypto markets during the beginning of 2021. Furthermore, the addition of more cryptocurrencies led to even higher returns.”
According to the document, the results of the 2021 study also lend credence to the conclusions drawn in the 2020 research that showed the positive impact of crypto allocations to investment portfolios despite the market crash of mid-March (Black Thursday).
Related:Mr. Wonderful’s crypto allocation is now larger than his gold holdings
Crypto exposure is becoming a significant trend among institutional investors. As previously reported by Cointelegraph, a recent Bank of America report showed 20 major public companies in the United States having significant digital asset-based investments.
Back in September, a survey by European investment management outfit Nickel Digital Asset Management stated that 62% of global institutional investors with zero crypto exposure will begin making forays into cryptocurrency and blockchain within the next 12 months.
According to a survey, financial advisers are recommending investments in Bitcoin and crypto assets to their clients more than ever before.
A report by the Financial Planning Association released on June 1 has taken a look at the changing attitudes towards crypto assets. The ‘2021 Trends in Investing Survey’ revealed that more financial advisers than ever are recommending their clients have some crypto in their portfolios.
The survey was conducted in March and received 529 online responses from professional financial advisers who offer clients investment advice and recommendations.
It stated that 14% of financial advisers have already added crypto assets to their clients’ portfolios or are recommending it to them. Even more are planning to do so over the next year.
“More than a quarter (26 percent) of advisers indicated in the 2021 survey that they plan to increase their use/recommendation of cryptocurrencies over the next 12 months.”
The survey revealed that the figure is up significantly from the previous year when less than 1% of advisers were recommending exposure to cryptocurrencies.
Furthermore, 49% of finance professionals indicated that, in the last six months, clients have asked them about investing in cryptocurrencies, a figure that has almost trebled from just 17% in 2020.
Just below half, or 48% of financial advisers, claimed to read occasional news stories on cryptocurrencies and are somewhat comfortable conversing about them, with a third of advisers actively educating themselves on digital assets.
Clients appear to be less concerned with market volatility this year compared to last, the survey found. More than half, or 52%, of financial advisers, stated that their clients inquired about market volatility over the past six months, compared to 76% for the previous year.
Investors may be drawn to crypto assets as a hedge against inflation which has been exacerbated during the pandemic and ongoing fiscal stimulus packages. Inflation in the U.S. is hovering around a 13 year high.
In early May, Cointelegraph reported that financial advisers have been leading an institutional push toward crypto asset adoption.
Grayscale CEO Michael Sonnenshein told Cointelegraph that, “Curiosity and demand from clients are driving financial adviser interest in crypto.” His observations were derived from a survey commissioned by the investment firm showing that more than half of advisers are receiving questions from their clients about cryptocurrencies.
On Feb. 19, Bitcoin’s (BTC) market capitalization surpassed $1 trillion for the first time. While this was an exciting moment for investors, it also concerned investors that the asset is in a bubble.
Although a handful of listed companies ever achieved this feat, unlike gold, silver, and Bitcoin, stocks potentially generate earnings, which in turn can be used for buybacks, dividends, or developing additional sources of revenue.
On the other hand, as Bitcoin adoption increases, those same companies will likely be forced to move some of their cash positions to non-inflatable assets, ensuring demand for gold, silver and Bitcoin.
In fact, data shows that diversification between Bitcoin and traditional assets provides better risk-adjusted performance for investors, which is getting increasingly difficult for companies to ignore.
Bitcoin continuing to push above the trillion-dollar mark is also easy to overlook until one compares it to the market cap of other significant global assets. To date, less than ten tradable assets have achieved this feat.
World’s 20 most profitable companies. Source: fortune.com
As depicted above, the world’s 44 most profitable companies combined generate more than $1 trillion in earnings per year. One must keep in mind that stockholders might as well reinvest their dividends into equities, but some of it might end up in Bitcoin.
$1 trillion is small compared to real estate markets
Corporate earnings are not the only flows that may trickle into scarce digital assets. Some analysts estimate that part of the real estate investment, especially those yielding less than inflation, will eventually migrate to riskier assets, including Bitcoin.
On the other hand, current holders of lucrative real estate assets might be willing to diversify. Considering the relatively scarce assets available, stocks, commodities, and Bitcoin are likely the beneficiaries of some of this inflow.
Global real estate markets. Source: visualcapitalist.com
According to the above chart, the global agricultural real estate is valued at $27 trillion. The U.S. Department of Agriculture estimates a return on farm equity at 4.2% for 2020. Albeit very raw data, considering there are multiple uses for agricultural real estate, it is quite feasible that the sector generates over $1 trillion per year.
As recently reported by Cointelegraph, there are 51.9 million individuals worldwide with $1 million or higher net worth, excluding debt. Despite representing only 1% of the adult population, they collectively hold $173.3 trillion. Even if those are unwilling to sell assets in exchange for BTC, an insignificant 0.6% annual return is enough to create $1 trillion.
If there’s a bubble, Bitcoin is not alone
These numbers confirm how a $1 trillion market capitalization for Bitcoin should not be immediately considered a bubble.
Maybe those Bitcoin maximalists are correct, and global assets are heavily inflated due to a lack of scarce and secure options to store wealth. In this case, which doesn’t seem obvious, a global-scale asset deflation would certainly limit BTC upside potential. Unless they somehow think a cryptocurrency can extrapolate global wealth, which seems odd.
Back to a more realistic worldview, the above comparison with equities, agricultural real estate, and global wealth also confirms how insignificant Ether’s (ETH) current $244 billion capitalization is, let alone the remaining $610 billion in altcoins.
Assuming none of the corporate profits or real estate yield will be allocated to cryptocurrencies seems unlikely. Meanwhile, a mere $100 billion annual inflow for Bitcoin is five times higher than the $20.3 billion newly-minted coins per year at the current $59,500 price.
For example, $100 billion flowing into Bitcoin would only be 5% of the $1 trillion yearly corporate dividends and 5% from global wealth or agricultural real estate returns. Even though the impact on gold’s $11 trillion market capitalization would be negligent, such allocations would certainly play a vital role in Bitcoin’s path to becoming a multi-trillion dollar asset.
The views and opinions expressed here are solely those of theauthorand do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
The CB10 Index performed better than Bitcoin, yielding 8% compared to BTC’s 5% gains at the end of January.
The Index will now include a greater percentage of altcoins after Crypto Briefing’s analysts decided to include Kraken and Gemini.
The rankings based on market capitalization have gone through an extensive change with DeFi tokens and Ethereum competitors leading.
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The biggest winner of Crypto Briefing’s CB10 Index in January was Ethereum’s native token, ETH. The rebalancing witnessed a positive addition of 2.15% for Ethereum, whereas Bitcoin’s share decreased the most with a negative 5.55% change.
A decision to include two more U.S.-based crypto exchanges Kraken and Gemini, allowed Ethereum’s competitors Polkadot and Cardano to enter the Index. Aave and Uniswap’s governance tokens feature as well.
Consequently, four altcoins in EOS (EOS), Tezos (XTZ), Synthetix Network (SNX), and Cosmos (ATOM) were removed from the index of ten cryptocurrencies.
Performance of CB10 Index
In crypto markets, altcoins have a higher beta compared to Bitcoin. Hence, during bullish phases, the performance of altcoins is better as well. The same holds for downtrends; altcoins tend to plunger lower than BTC.
This dynamic is evident in Ethereum’s rise (in yellow), which increased by 28.8% compared to Bitcoin’s 5% and CB10’s 8% since the index launched on Jan. 5.
Ethereum’s rise has, however, been far more volatile than that of Bitcoin and the CB10 Index.
The crypto markets are highly volatile, with Bitcoin’s 30-day volatility at 5.6%. The corresponding volatility in altcoins is much higher; Chainlinks’ 50-day historical volatility is 99%. Still, with a small allocation to altcoins, the CB10 index has yielded higher returns than Bitcoin with comparatively low risk.
Price chart of ETH (in yellow), BTC (in red), and CB10 (in blue) since launch on Jan. 5.
Crypto Briefing CB10 Index’s First Rebalance
The first rebalancing of the CB10 index was performed at 10 am ET on Jan. 31.
The previous composition was nearly 80% BTC, 16% ETH, and the final 4% was divided among eight different altcoins. The drop in Bitcoin’s market dominance from 69.3% to 63.2% has made more room for altcoins in the Index.
Ethereum’s 2.15% increase in allocation is the largest positive change in the index, followed by Chainlink (LINK) token and Stellar (XLM), which saw a rise of 0.31% and 0.27%, respectively. Payment protocols Litecoin and Bitcoin Cash continued to suffer, changing negatively 0.34% and 0.12%, respectively.
In retrospect, limiting the Index to Coinbase Pro only focuses on a small set of users—primarily high-volume American investors. If the last week has revealed anything, it’s that the retail crowd holds as much explosive power.
Therefore, the renewed Index will add tokens from both Kraken and Gemini exchange. It allows the inclusion of two of the top Ethereum competitors and complementary scaling solution in Polkadot and Cardano.
This implies letting go of the bottom four cryptocurrencies in the list, however.
While EOS (EOS), Tezos (XTZ), Synthetix Network (SNX), and Cosmos (ATOM) are promising blockchain projects, they will not feature the weighted index of ten cryptocurrencies until next month’s reconstitution.
Instead, DOT, ADA, UNI, and AAVE entered the index with the following distribution.
Notably, Dogecoin ranked higher than AAVE. However, the team’s analysts have decided to exclude DOGE due to the massive volatility last week and failed pump attempts from r/wallstreetbets. DOGE gained 1,120% in the pump and is currently most susceptible to a correction.
CB10 Rebalancing Details on Jan. 31. Source: Google Sheets
How to Perform the Rebalancing on Exchanges?
One of the easiest ways to rebalance the portfolio is to sell the cryptocurrencies for a stablecoin and repurchase according to the new weightage.
Essentially, this method teaches users about compound interest. An investor could either realize monthly gains and reinvest the original portfolio amount or go for compound earnings.
For instance, Crypto Briefing’s hypothetical $1,000 portfolio has yielded $80 so far. An investor could either reinvest the initial $1,000—keeping $80 as profit—or reinvest the entire $1,080.
Compound interest yields higher returns than realizing the gains every month. For instance, if the portfolio gains 2% per month, the effective annual compounded return is 26.7%, whereas if the profit is taken out every month, it will be 24%.
The annual compounded returns rise by nearly 20% if the monthly rate rises by just 1%. If the monthly returns are 3% effective annual return would be 42.5% and 60% with 4%.
However, the same is true for downtrends, causing greater losses. While compounding sounds lucrative in a bull market, realizing monthly gains can also be an effective strategy for overall better annual returns.
For reference, the CB10Index rose by 8% in January.
Rebalancing the CB10 Index
The buy and purchase of these tokens, nonetheless, presents a particular challenge on crypto exchanges. Portfolios in the range of $500 to $1,500 have allocations that do not qualify the minimum order size for trading. For instance, the minimum USD order on Kraken is $10, and even $1,000 portfolios could have tokens of less than $10 slice.
A cheeky trick is to buy 11+X quantities and then sell back 11 units. It is done for both purchase and sells—adding a dollar to the minimum limit allows for a deduction of trading fees.
The trading fees are usually around 0.02%. Traders executing $2,000 orders will incur a fee of less than $1.
Crypto Briefing CB10 Index portfolio tracker. Source: Google Sheets
Investors could also use Bitcoin or Ethereum pairs on exchanges and perform trades based on the percentage differences in the rebalancing table.
Disclosure: The author held Bitcoin at the time of press.
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here’s the team and link to their website:
https://t.co/4zgZdSQMUR
Would be good to see a ‘portfolio’ addition to their site, like @a16z do. This way the public can see which startups @nascentxyz team deem worthy for early investment. Crunchbase data yet to be updated. https://t.co/9X83FWpcho
