by Jamie Holmes
While the Winklevoss Bitcoin ETF was denied in March and cryptocurrency ETF’s have yet to bleed through into reality, investors can still gain exposure to the new asset class with the Token Fund, which forms a basket of cryptocurrencies and takes out the hassle of acquiring and securing these digital assets.
Making Cryptocurrency Investing More Accessible
Cryptocurrencies such as bitcoin and ether have a correlation close to zero with the real economy, providing an important hedge against financial crises, but a lack of knowledge and familiarity may put investors off. However, the Token Fund is will change that, with a primary focus on solutions that will ‘enable the essential autonomous infrastructure for a surpranational economy.’
So how does the Token Fund work? As no cryptocurrency market index exists as of yet, the Token Fund structured their portfolio mainly based on market capitalization, but also on trading volume. Cryptocurrencies with a daily average turnover of less than $100,000 for the past six months are automatically excluded from consideration.
Also, cryptocurrencies are tiered by market capitalization so that not too much weight goes to one digital asset. For example, cryptocurrencies could be split into three groups, with the top group composing of 50 percent of the portfolio (including heavyweights such as bitcoin, ether, litecoin), with a bottom group composing of 20 percent (lightweights like Siacoin and Storjcoin X).
To account for changes in the cryptocurrency market, the Token Fund whitepaper states that the portfolio will be rebalanced according to certain rules as to ensure continued growth in the value of the fund:
“Monthly or quarterly rebalancing is proposed, whereby the fund managers makes the required transactions to reset investment fund structure in accordance with predefined rules. Since investors prefer low transaction costs of the fund, rebalancing is done at the manager`s discretion, acting with best possible practices to preserve the value of the fund.”
Investors can participate by biying either bitcoin or ether and then sending to the Token Fund. Investors are then issued with TKN, the supply of which depends on the incomes and outcomes of the fund’s capital. Each day, the Token Fund issues TKN based on a price calculated at 12:00 and 00:00 GMT.
TKNs are based on Ethereum as the blockchain network allows the creation of a much more complex system with relatively lower entry costs vis-a-vis Bitcoin. The advantages accruing from their choice include:
-Compatiblity with robust and well-supported clients.
-High liquidity, as TKN are easily interchangeable with ether and ETH-based tokens.
-Ethereum smart contracts allow transparency in the way profit-sharing is undertaken for the fund.
-The security provided by the second most valuable blockchain network as opposed to building a new blockchain from scratch.
The Token Fund’s Strong Performance Over 2017
The fund has performed well over the past three months, with the valuation fo the TKN token rising from around $10 in late March to $20.93 on May 8. The chart below show the value of the Token Fund in terms of bitcoin, rising from 131 at the end of April to 240 at the time of writing. The fund’s assets are available for all to see and updated regularly.
Every 12 hours asset parser component calculates current portfolio value and fund performance using API of popular blockchain explorers in order to receive balances of fund wallets and information from the token smart-contract. The code for the smart contracts associated with the Token Fund can be found here.
But while the Token Fund is venturing into the new world of smart contracts and blockchain technology, it is similar to a traditional investment fund in that the fund managers will make key decisions; Viktor Shpakovsky and Vladimir Smerkis will be responsible for such decisions, as well as the security and transparency of the operation. They will also ensure that under adverse market conditions that the portfolio rules do not end up hindering, rather than supporting, the growth in value of the fund.
An unprecedented reformulation of the global economy is underway, with cryptocurrencies and blockchain technology promising to tranform the world. As these innovations start impacting our daily lives, more and more money will flow into this new asset class, as they serve as an exit from the traditional financial system. The Token Fund will provide investors exposure to this new asset class and the phenomenal gains they have tended to exhibit.