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OUR RATIONALE BEHIND A CRYPTO INDEX STRATEGY

Index investing has seen exponential growth among investors since the first index mutual fund was launched in 1976. This has proven to be a successful form of investment as the low-cost involved has allowed index funds to outperform the majority of active managers across market and asset styles. Over a 10-year investment horizon more than 80%of large-cap fund managers failed to outperform their benchmark index. The odds of picking a winning fund manager are also low: studies show that regardless of past performance, future performance is virtually random. Simply, an index fund allows investors to track the index– the underlying trend behind the selection of assets without being reliant on a particular one. There is no active trading apart from the rebalancing of assets at fixed time intervals. This allows the fund to consistently track the mean market performance even if some of the original assets fall out of favor.

The GRANDIZO plan portfolio is the first of its kind – it is bought with crypto and holds only cryptocurrencies. It will bring stability and old-economy money into the ecosystem, which will boost liquidity and provide a stable instrument for those who previously thought it was too risky to invest in a single technology. It is hypothesized that one is not able to attribute the lack of cryptocurrency take-up by retail investors seeking to allocate ’high-risk’ portfolio funds solely to the difficulty of purchasing cryptocurrencies. The number of exchanges, services and payment methods available to purchase cryptocurrencies is increasing exponentially. In many cases it is easier and less burdensome to purchase bitcoin than to invest in a USD denominated mutual fund. We believe this lack of investment may be due to the fact that no such product has previously been available, communicated effectively in plain non-technical language and actively marketed to this sector. There is a distinction between ’high risk’ and ’unacceptable risk’ in the minds of many investors – cryptocurrencies have traditionally been seen as the latter. GRANDIZO aims to bring the risk to an acceptable level for allocation to a retail investor’s portfolio.

Zero Sum Game

The central concept underlying the case for index-fund investing is that of the zero-sum game. This theory states that, at any given time, the market consists of the cumulative holdings of all investors, and that the aggregate market return is equal to the asset-weighted return of all market participants. Since the market return represents the average return of all investors, for each position that outperforms the market, there must be a position that underperforms the market by the same amount, such that, in aggregate, the excess return of all invested assets equals zero. This zero sum around the market weighted mean return means that for every profitable trade an investor makes, another investor must make the opposite side of that trade and incur a loss relative to the market. This holds true regardless of whether the coin or token in question is mispriced or not, and for the same reason, the zero-sum game theory must apply regardless of market direction. The distribution of market returns will thus be centered around a mean – that we aim to track. By holding a basket of coins we capture this mean return– we expect to see a few coins that underperform and a few that over perform, the sum of the returns should provide the mean or market/index return.

Low-fee Fund Benefits

Active traders and fund managers generally have a far higher fund expense ratio than that of an index fund –around 6 times higher than an index fund (3% p/a compared to 0.5% p/a). The effect of this is that the aggregate return of investors is less than zero sum which makes outperformance compared to an index strategy and to the market much less likely. Data from the Financial Research Corporation has been used to evaluate the predictive value of different fund metrics such as a fund’s past performance, Morningstar rating, alpha, and beta. A funds expense ratio was the most reliable predictor of its future performance, with low-cost funds delivering above-average performance relative to the funds in their peer group in all of the periods examined. Likewise, Morningstar performed a similar analysis across its universe of funds and found that, regardless of fund type, low expense ratios were the best predictors of future relative outperformance. A position as a large player in the crypto markets will afford GRANDIZO access to lower exchange fees and none of the legacy banking costs. Fiat investors looking for crypto returns with a broad exposure and limited risk profile will be drawn to GRANDIZO.

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