The past few weeks have been a wild ride within international ﬁnancial markets. Not since the economic crash of 2008, have ﬁnancial markets seen this much negative movement. Especially, after such an extended period of relative growth and stability. Some charts even position the current drop in global stock markets as surpassing the great crash of 1929.
A huge number of factors have played their respective hand in this downward market. Although some relative stability has been seen in the last few days, the simple reality is that the upward growth enjoyed since 2016 has been written oﬀ in a very short matter of weeks.
Likewise, the Crypto markets were not immune to this downward movement. This was demonstrated with Bitcoin and most other major currencies hitting their lowest point in a year. The low point of Bitcoin was especially shocking. However, their recovery was much more impressive than other ﬁnancial markets.
While this article is not looking for focus in on the speciﬁcs of these movements, it is important to begin with discussing them in order to paint the context. If you want to learn more on the ﬁnancials, there have been a number of great articles written on the current and prior movements of the markets.
As is common with any ﬁnancial market entering a period of uncertainty, many private investors and professional participants, begin to pull their funds out. Hopefully taking it to ‘safer locations’. This pull, is often twinned with a resistance to participate or invest in new projects. This resistance coming from the universal understanding that startups are often pose the most risk as part of an investment or ﬁnancial strategy.
However, in such a time of economic movements, many fail to realize that the risk reward model also shifts. Essentially, those startup projects which once posed a passive risk factor now, actually become a much more attractive proposition, for all types of investors. Let’s take a look at the reasons why.
It is impossible for a company price to go down. Thinking about it logically. If you get in at the ground ﬂoor, then it is impossible to go down. In that sense, if you purchase Security Tokens or Crypto’s from a startup the value of those cannot go down, at least not in the primary market. True, there is the possible ‘dump’ scenario during the initial secondary market movements, but a good project will manage this with sale staggering and certain controls.
When you purchase during a initial sale or the primary oﬀering, especially during an STO with a vesting period, the investment cannot go down.
They shore up portfolios The fact that the investment cannot go anywhere, means that the exposure to the section of portfolio invested within it, is not subject to movement. This has a shoring up eﬀect. Let’s take this an example: If a portfolio were to invest 20% in a Security Token oﬀerings that had a 12 month vesting period, those investments are not moving for 12 months. This means that 20% of the portfolio is not going down. Naturally, this means that this portion of the portfolio cannot go up, but in such turbulent markets, the biggest fear is a drop, not a raise.
This gives the portfolio more ﬂexibility within the remaining 80% to continue more of a risky strategy. That risk, could be the day to day trading if the market is that volatile. Many funds may shift their trading strategy all together, but those who still like to lean on the overall side of risk, can strike a reasonable balance using this method.
There is more liquidity A huge amount of the liquidity seen to date in the relative recovery seen has been down to government and private company buybacks of stocks to ensure liquidity in the market. In tje secondary market for the sale of new issues, there will, in theory be better liquidity. This is because those who were involved in the project early on will be looking to move what they have purchased. There will, also be those who are looking to get involved in the project. Providing that the project is a success or at least meeting its objectives.
We could therefore categorize this section as not so much ‘more liquidity’ but more ‘real’ liquidity rather than government lead buybacks.
Most professionals will have their own method of trading, everyone should respect that. However, in this market, conﬁdence should be given to startups trying to raise funds. Especially those in the Security Token and Crypto marketplace. This is because, as discussed at the beginning Crypto had a much better recovery than the typical ﬁnancial markets. Twinning this with the advantages above, parties should be promoting new Security Token projects and Crypto projects as much as possible during this time.
*None of this article is to be taken as investment advice.