Even though cryptocurrency prices have been highly correlated to the traditional market over the past eight to ten months, this has not always been the case. In fact, they were highly uncorrelated for the first ten years of crypto market existence. It was exactly this separation which appealed to numerous investors who didn’t want to be at the mercy of factors such as inflation.
Once again, it appears that cryptocurrency is decoupling from traditional markets, and cryptocurrency markets actually performed better than stocks, bonds, and gold in Q3 of 2022.
COSIMO-Y’s risk-managed digital yield fund offers investors and institutions the chance to put their money into a vehicle which promises to offer independent yields at a risk profile in line with the investor’s needs and desires.
Copyright: COSIMO Ventures
Traditional Bonds and the Risk of Inflation
Fixed-income assets are investments that pay out in the form of fixed periodic payments, however, real returns are subject to inflation. This can adversely affect the investor in numerous ways, especially if the bond is long-term, as there may be periods of high inflation. Once inflation rates are more than central banks predicted, or wanted, interest rates tend to increase in order to manage it.
Ultimately, high inflation negatively affects returns from fixed-assets, especially over long periods of time. As such, many investors are looking towards investment opportunities which are decoupled from these assets in an effort to diversify their portfolio and minimize their overall risk profile.
How Cryptocurrency is Decoupling from Traditional Assets
According to Rob Frasca of COSIMO Ventures, ”The Bull-Market prompted a move away from the traditional values which cryptocurrency was based on – transparency, decentralization, and self-sovereignty. Instead, the focal point became price-action and who had the best yield. This had an impact on how cryptocurrency became deeply correlated to traditional assets, which in turn, raised concerns on risk diversification benefits which were important to their popularity.”
Thankfully, cryptocurrency is once again decoupling from traditional markets and returning to some of its core values, especially transparency. By decoupling from traditional assets, cryptocurrency can serve as a bridge to protect investment portfolios during times when equities and fixed assets are down.
How Proof-of-Stake Offers an Independent Yield:
Staking is an essential and fundamental activity in maintaining blockchain network infrastructure. As blockchains are a decentralized technology, they rely on the network participants to reach a consensus about whether a transaction is valid. Consensus can be reached in many ways, but for a rising number of blockchains, consensus is reached through a mechanism called ‘Proof-of-stake’. The Proof-of-Stake consensus mechanism is rapidly evolving the crypto space with a 99.9% reduction in energy costs from the legacy Proof-of-Work consensus mechanism utilized by Bitcoin. This mechanism enables blockchains to achieve greater scalability, speed, and decentralization than previously possible. Additionally, proof-of-stake incentivizes far greater network participation by providing staking rewards to protocol stakers that contribute to validating the network. In exchange for this network participation, protocol stakers earn rewards in the network token.
Staking yield is independent of United States interest rates as staking yield is set by the protocol itself. Therefore, proof-of-stake assets have the opportunity to decouple from assets like bonds and stocks whose valuation is directly related to interest rates. This is especially useful to investors who want to diversify their portfolio.
This variation in investments spreads investor risk across several asset classes which helps to reduce downside risk. Furthermore, once assets aren’t directly correlated, there is the increased chance of steady incomes. In proof-of-stake, there’s also self-custody for staking so you keep your keys and you keep your coins. As such, you don’t have to risk anyone else lending them out or taking ownership of them which ultimately lowers your risk further.
COSIMO Y Offers a Diversified Risk Profile
As a risk-managed digital yield fund, the platform has vigorously arranged a tech stack with diversified custodians, staking providers, and exchanges. This shelters investors from single-points of failure with counterparty-risk, while still utilizing best-in-class solutions.
Frasca continues to say that, “being self-sovereign is more engaging right now than ever. The decentralization which was key to the origin of cryptocurrency is once again focal to the appeal of crypto. More than that, the separation between traditional assets and crypto is intriguing to investors and institutions alike as it ultimately results in a diversified portfolio which isn’t fraught with risk. By not putting all their eggs in one basket, investors are able to ensure that no matter what happens in the world, they have a much better chance of having at least one investment remain stable, or even grow in value.”
Partnered with key partners in the digital asset space, institutions are able to be onboarded at scale, and with individual risk profiles in mind. In staking, the counterparty is the blockchain which markedly minimizes risk compared to numerous other yield-generating activities.
The solutions offered by COSIMO Y claim to enable investors to stay in the markets, receive an income, and possibly alleviate the downside risk, regardless of the condition of the market.
Final Take
Rather than being vulnerable to the threats to fixed-asset returns as well as the unpredictable nature of the industry, investors get to participate in supporting blockchain networks. With experienced fund managers, COSIMO Ventures’s COSIMO-Y fund makes sure that investors get the best possible returns in line with the risk profile they’re comfortable with.
