The firm Cryptotrust will soon launch in Uruguay its first trust (called Genesis Block I) with a diversified portfolio of cryptocurrencies. Intended for local investors, it will have a term of 90 days and a minimum investment of $ 25,000 access.
Juan Manini Rios, Blockchain Asset Trader, CEO of Trading Bost SRL and author of the initiative , answered the Funds Society questions about this investment vehicle.
What risks does the investor assume when he bets on this type of trust?
The main risks that are assumed when investing in vehicles that provide exposure to a diversified basket of cryptocurrencies are market risk, custody risk of digital assets, credit risk implicit in the vehicle that provides the desired exposure, and the regulatory risk.
Except for regulatory risk, other risks can be mitigated by selecting a vehicle that offers adequate guarantees and a qualified fiduciary for the task. In our case, the trustors of the Genesis Block I Administration Trust sign an adhesion contract subject to the laws of our country and deposit the funds in a fiduciary account in a bank in Uruguay that isolates the trustee’s trust assets (Cryptotrust Fiduciaria SA) . Given that Cryptotrust will carry out its own custody in “cold storage” of cryptocurrencies, the risk of custody is greatly reduced. The price or market risk due to technological factors is mitigated in an important way by making a diversified portfolio of digital assets.
As an example, an investor who had bought the bitcoin at its historical maximum of $ 20,000 on 12/16/17 and calculated the variation from the minimum touched on 2/7/18 would find a negative change of the order of 60% . On the other hand, if you compare the same dates but for a diversified basket of cryptocurrencies, the negative variation is reduced to 14%, which shows the benefits of diversification.
In relation to regulatory risk, the worldwide trend observed by the monetary authorities is to allow the use of cryptocurrencies as a means of payment, which is generating precedents for many jurisdictions.
Are there similar experiences to the one that Cryptotrust is proposing to Uruguayan investors?
While there are several international investment vehicles that provide exposure to cryptocurrencies, Genesis Block I will be the first local trust that will make available to qualified investors the exposure to a diversified basket of cryptocurrencies, using a local bank, with its own custody and audit of a third party on the stock of digital assets and private keys under control. An instrument with all these characteristics we have not found in the market so far, so it is a differential element.
What returns can we expect?
The cryptocurrencies do not generate any flow of funds so their value depends exclusively on supply and demand which is difficult to quantify and forecast. Anyway, our opinion is that in the future there will be a decrease in the supply and a very significant increase in the demand for the elements that we detail below.
Bitcoin and most of the major cryptocurrencies in circulation have a decreasing emission curve incorporated into their protocols. This means that the supply of new currencies will be reduced in a deterministic way until eventually reaching zero in many cases.
For example, in the case of Bitcoin, the modality with which new units are created produces an emission curve that tends asymptotically to the value of 21,000,000. Currently, some 17,200,000 bitocoins have been created, 81.9% of the total. The next reduction will take place in mid-2020, when the trust will have already completed 2 years, and we understand that this event could be an important catalyst in the price of the main cryptocurrency, underpinning the value of Genesis Block I. The other cryptocurrencies in the which the trust estate will be invested will also have a substantial reduction in the issuance of new currencies during the term of the trust.
On the other hand, there is evidence that shows a clear trend towards the adoption of cryptocurrencies. This trend can be difficult to detect due to the huge fluctuations in the number of transactions recorded in the blockchains due to the various speculative bubbles observed in recent years, but there is no doubt that the trend towards adoption exists. While many people insist with wrong concepts such as ‘blockchain yes, Bitcoin no’ or ‘private or permissive blockchains’ the reality is that cryptocurrencies are a fundamental and inseparable part of the blockchains as we know them. All the applications that operate on blockchains with systems of public and distributed consensus that have come out or are in development will use some cryptocurrency in their operation.
