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Maxim Bederov - Types of digital assets

Discussion in 'General Discussion' started by Misha Pufin, Apr 4, 2019.

  1. Misha Pufin

    Misha Pufin Beginner

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    For many private wealth managers, investing in digital assets has been a step too far. Yet the recent news that the state of Virginia’s Fairfax County has invested two pension plans in Morgan Creek Asset Management, a digital asset manager with $1.4 billion under management, proves that an allocation to digital assets should be taken seriously.

    The plans, the Employees Retirement System and the Police Officers Retirement System, have committed around $20 million in Morgan Creek’s new blockchain venture capital fund.

    Types of digital assets
    • Digital asset trading
    Similar to FX, digital asset trading involves the exchanging of either fiat to digital currencies or between digital currency pairs such as bitcoin or ethereum. It is possible to invest in newly launched coins (ICOs) and also in the increasingly popular STOs.
    • Digital ETPs
    Structured in a similar way to ETFs in that they track an index or basket of assets, a digital asset ETP generally tracks the top ten digital currencies. Their characteristics are similar to a leveraged ETP in that investors do not own the underlying assets. They differ from security token ETFs where investors have ownership of the tokens. In this case, the ETF trades in a similar way to a traditional equity-based ETF. While there is still no US regulatory approval for a digital ETF, it is possible to invest in a bitcoin ETF through for example, an exchange-traded note on Sweden’s Nasdaq Stockholm Exchange.
    • Direct investing through security tokens
    This is considered a less volatile way of investing in digital assets because security tokens are uncorrelated to the broader market movements. In addition, these are regulated entities which are traded in the same way as stocks or shares. However, there is less diversification as the investments are similar to venture capital projects such as blockchain, social impact and real estate. Therefore, there is a high risk of investments failing.
    • Blockchain-focused hedge funds
    These funds trade in established digital currencies, as well as invest in new ICOs and a range of service providers. They actively seek out volatility in order to maximise returns. Some hedge funds allocate only a small percentage of their investments into digital assets in order to lower risks.
    • Blockchain-focused venture capital funds
    Used as a form of fundraising, these funds are similar to early stage investments from a traditional venture capital firm. Many projects are direct investments covering blockchain, fine art, social impact and real estate projects. There is a high risk of failure and as a result, investors require a high level of expertise in the evaluation process. However, many traditional venture capital funds aiming to gain first mover advantage are moving into this space.

    By Maxim Bederov


    Maxim Bederov has nearly two decades of experience in financial services, most prominently at MLP Finanzdienstleistungen SE, a Germany-based consultancy for financial planning.

    Bederov is now a serial entrepreneur and early-stage investor in a number of projects. He has been active in blockchain technology since 2014.
    Last edited: Apr 4, 2019

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