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Native Tokens of Cryptocurrency Investment Funds - ICORating Research

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Native Tokens of Cryptocurrency Investment Funds - ICORating Research

From the 209 cryptocurrency-focused investment funds operating in the first half of 2018, 35 funds - just under 17 percent - have their own native token. A new report by ICORating Research analyzes the dynamics of each of these tokens.

Despite Bitcoin’s price decline and the overall bear market negatively affecting profit projections for crypto investors, blockchain technology and cryptocurrencies have nonetheless become a significant target for hedge funds, venture capitalists, and private investors in 2018. This is due in no small part to the fact that lifetime yields have exceeded 3000 percent across a sample of 24 crypto-focused funds, compared to an average of 8 percent for traditional hedge funds.

As of the beginning of August 2018, 11 of the 35 tokens are listed and traded on crypto exchanges. Only two tokens grew relative to their initial price – TaaS (TAAS) and Bit20 (BTWTY). Market capitalization of three of the tokens studied currently exceeds the funds raised in their initial coin offerings (ICO) –TaaS (TAAS), Astronaut (ASTRO) and Swarm (SWM).

The average hardcap for the funds under consideration amounted to $42.7 million (only non-zero hardcaps have been taken into account), whilst average funds raised amounted to $9.8 million, far below the average hardcap. The total amount raised by all the funds was USD 204.8 million.

Our research reveals that crypto funds are trying to adapt traditional market strategies, such as indexing and algorithmic trading, to the crypto market. The majority of funds focus on cryptocurrencies and blockchain projects within their portfolio and offer a 2/20 fee schedule, allowing investors to pocket up to 80% of revenue generated.

In general, results and benefits for token holders of native crypto fund tokens cannot be treated as a sign of a fund’s success. Native tokens of crypto funds may be considered as a source of additional privileges (voting rights, rewards, etc.) and possible passive income in the event of being listed, but don’t guarantee the profitability of any investment strategy.

Listing of a native token on an exchange should not be treated as a success indicator for its crypto fund, as the presence of such a token on exchanges, or its trading activity, do not correspond to the objectives of such an investment fund.

Most funds with tokens exhibit some or all of the following problems: A lack of transparency or reporting, unclear fund and token economics, poor performance against the market (especially in declining markets), unclear current token status, and no listings on exchanges.

Based on the above, we concluded that investing in native crypto fund tokens (for existing as well as upcoming funds) bears very high risks for investors and lacks evident benefits, especially in the currently volatile, highly unpredictable crypto market.

Find the full report here.

24 Aug 2018

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