Thursday, May 10, 2018

Massive Positively Skewed Cryto Risk-Rewards




I'm not saying to do crypto, I'm just pointing out something that seems rather obvious to me.

In all investments, unless there is some magical explicit guarantee, the maximum loss is 100%.

Generally speaking, the "lower risk" an investment has, the "lower returns" it would give. Ie. a bond that will be redeemed at 100 face value won't trade too low below this number, but returns won't be high either.

Well, assuming of course if the borrower can pay back the bond. Bonds are rather binary in nature, imo. If they can be paid back, they will stick around face value. And if not, they are pretty worthless. You don't get the smooth downward trend that you see in equities.

Anyway, I don't want to explain too much. This isn't rocket science. The risk/reward relationship holds true because it makes sense.

The thing about crypto, which many rational and logical people have still failed to realize and understand is that crypto's risk/reward is extremely positively skewed.

ICOs are pumping out sick returns like the tweet above. And guess what? Those aren't even that good of a return. For 2-4 months of locking up funds in an ICO and waiting for release, most people were expecting a lot more profit.

Average ROI in ETH is x2.6, or 160% profit.
ATH ROI in ETH is x3.4 or 240% profit.

Worst two ICOs? -40% and -20%.
Odds of doing a losing ICO? 2 out of 11, or 18%. Or rehashed, 82% of making money.

The strategy that a lot of people in the crypto market has already realized and been employing is that splitting your capital and dropping a bit into several ICOs can supercharge your returns because the losses from the duds would be totally covered by the profits of the studs. Couple those ICO returns (in ETH) to the $ price increase of ETH over the period and your returns could compound to disgusting levels of profits.

I did one of these ICOs. It's in the top half of this page.

But ICOs are risky. And lots of ICOs are extremely stupid. I don't take part in most ICOs because I find lots of the ideas terrible. If I'm putting money into a stupid idea but I'm still expecting to profit, I'm gambling, not investing.

I repeat.

ICOs are very risky (in terms of fraud, scams, hacks, technological noobness, etc).
ICOs have mostly stupid ideas.

But hey if you know what you're doing? Ka-ching, ka-ching baby.

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