What would you rather buy: tokens in a $25mil ICO or a liquid token with a $5mil market cap?
The ICO still must prove itself. The liquid token is already trading on multiple exchanges. The liquid token’s team already hit a few milestones and either has a working ecosystem or is just months from releasing it.
Junk bond market
Around the mid-1980s the junk bond market appeared by leveraging that humans tend to be overly pessimistic. For example, certain bonds that pay 20% interest may have a lower probability of default then the interest would make you think. By picking those bonds certain hedge funds have made very impressive returns in the past.
The high yield bond average return over the last 15 years has been around 12.5% compared to an average of 4.4% return for investment grade bonds. And in 2009 the returns have reached as high as 58% for example.
The junk bond market is about $1.1 trillion USD in size or about 15% of the total $7.8trillion corporate bond market.
Humans over-react to immediate risks and under-estimate long term threats and we under-react to changes that occur slowly and over time.
Crypto market application
We believe that the crypto market is in a similar state now where hundreds of tokens are under-valued and should be considered as a better risk-to-reward ratio than many more visible opportunities.
We believe there is an a present market opportunity to focus on tokens and currencies with the following specifications:
1. Listed on Coinmarketcap.com
2. Listed at least on 2 or 3 top 50 exchanges by volume
3. A market cap that is below $10mil or so
4. A project to whom blockchain gives an edge over incumbent solutions
5. A team that has already delivered on milestones as promised
6. A project that has a logical usage of its own token
7. A project that has a live beta or is about to deliver one within 6 months
8. A project which will get traction once live
Loss of value since January 2018
Many of these tokens have lost 75–90% of their value since January 2018 for multiple reasons:
1. It was hard in January of 2018 to evaluate which tokens will survive the bear market and which will not. So, the average crypto holder took refuge to sure value tokens like Bitcoin and Ethereum.
2. Many of the token teams have focused on building what they promised instead of spending money on marketing.
3. Many token purchasers before January 2018 were looking for a quick buy and flip. When they saw their chances of selling for a profit vanish they just dumped their tokens regardless of the perceived long-term value of the project they held tokens in.
Therefore, I strongly believe that these projects are highly undervalued currently.
Risk to reward ratio
I personally look at all my investments through a risk to reward ratio. If a token is trading at 100 Satoshi down from 2000 Satoshi I look at both sides:
1. Either I am wrong and the token will go to 0 value. In this case I lose 100 Satoshi
2. Or I am right and perhaps the token will recover to values of 300,400, or maybe even back to 2000 Satoshi or above.
I estimate my risk to reward ratio to be around 1:10. Therefore if I am right about 10% of my purchases I will break even. If I am right about 30% I will triple my investment.
As timelines go, I expect these projects to either deliver or fail within the next 6 to 12 months now. A much shorter horizon than an ICO for example.
And finally, I don’t have to hold all tokens until they reach a value of 0, they are still liquid.
Compare this to purchasing tokens in a $25mil hard-cap ICO that still must prove itself, if it ever does hit the hard cap at all and manages to list on exchanges.
What do these projects need?
Let’s assume one purchases such low-cap-tokens. What now? I believe what these tokens need is a clear presentation of what they have achieved with the money raised from the ICO in the last 6 to 12 months. And for this information to be well organized and made highly visible.
I believe this low cap token purchase opportunity to be the best risk to reward ratio investment in the crypto market currently.
Disclosure: I am the co-founder of the PIX token , https://www.pixtoken.co