While major institutional-grade cryptocurrency tools have been created in response to a growing interest in investing in digital assets, new solutions geared towards younger investors could gain traction this year.
Even with all the risks associated with investing in cryptocurrencies, millennials in particular are taking their chances. According to a recent study from Edelman, 25% of affluent millennials (anyone between the age of 24 to 38 who has at least $50,000 in investable assets or $100,000 in individual or joint income) are using or holding cryptocurrency. Additionally, 31% of millennials expressed interest in eventually owning cryptocurrency.
Moreover, Bitwise, a company known for creating one of the world’s first cryptocurrency index funds, conducted a study that showed how adding cryptocurrency to a traditional investment portfolio could be beneficial.
The study suggested that a 5% allocation of Bitcoin in a traditional portfolio mix of 60% stock and 40% bonds, more than doubled the returns of the portfolio over a four-year period, while reducing the maximum drawdown of the portfolio in the same period. The study also showed a minor impact in total volatility.
According to Paul Chou, CEO and co-founder of LedgerX, millennials are some of the biggest players in crypto.
“What we normally consider to be retail investors are actually the institutions of tomorrow. A lot of the biggest players in crypto are millennials that started early and have done extremely well. And while they would’ve classified as retail investors a few years ago, these individuals might be institutional now,” Chou told me.
In turn, as millennials continue to show interest in cryptocurrency investing, tools aimed at young investors are being launched to help them better understand the ever-changing market.
According to Parul Gujral, CEO of Snowball, millennial investors are more eager than ever before to invest in cryptocurrency assets. The San Francisco based company has already grown significantly since it’s public unveiling in November 2018, with a waitlist consisting of over 50,000 individuals. Over a thousand people are being added daily to the company’s invite-only list, almost all of whom are young, retail investors.
“Snowball conducted a study recently that showed about 85% of our user base consisting of individuals between the ages of 18 to 29. Almost half of these are students,” Gujral told me.
Snowball’s popularity among young investors shouldn’t come as much of a surprise, however. The platform is a crypto index aimed towards retail investors that provides a “smart crypto investment automation” (SCIA) tool. This gives users the opportunity to access strategies and portfolio allocations of experienced investors holding regulatory-complaint assets accounting of $10 million or more.
We’ve created a single investment vehicle that gives exposure to a weighted portfolio of digital assets that are rebalanced monthly based on a transparent investment thesis. Think about it as being the Schwab for digital assets. And with tax season coming up this is a great tool, as most of the work is in creating the composition of the index, including the performance of research, analysis, back-testing, applications of experience, and knowledge by the team. This means there can be fewer taxable events,” explained Michael Bucci, former hedgefund manager and COO of Snowball.
In addition to Snowball, LedgerX has also just launched a cryptocurrency index designed to track the expected volatility for bitcoin.
The LedgerX Volatility Index (LXVX), also referred to as the “Bitcoin Fear Index,” allows users to determine bitcoin’s expected volatility based on real-time data from options being traded on the LedgerX platform, which has been used by various institutions over the past year.
According Chou, the bitcoin fear index is geared towards both retail and institutional investors, although a majority of the LedgerX customer base is made up of millennials.
The bitcoin fear index is similar to a stock market volatility index, or VIX, which lets small investors know how ‘nervous’ a market is at any given point. The bitcoin fear index does the same thing by showing investor sentiment to predict what bitcoin will do in the next month or so. The index tries to capture this in a number, which is based purely on expectation, meaning not what has happened so far, but what might happen moving forward,” explained Chou.
LedgerX’s bitcoin fear index has already cleared over half a million dollars worth of regulated bitcoin derivatives (U.S. regulated trading). Moreover, according to Chou, millennials in particular are eager to use this platform, as bitcoin appears to be a millennial phenomenon.
“A healthy proportion of our user base are millennials simply because bitcoin is a millennial phenomenon in many ways. If you look at our customer base, these individuals were early on in the bitcoin space and have been big believers in cryptocurrency from the get-go. They are not necessarily the people you’d read about in Fortune, but they are the early adopters of bitcoin,” said Chou.
However, while millennial interest in the cryptocurrency market is gaining traction and more tools are being created geared towards young investors, Mati Greenspan, Senior Market Analyst at eToro, warns that investors should proceed with caution.
Investing in cryptocurrency assets are risky because we are talking about emerging technology. Of course, there is a lot of upside potential, but there is also a reasonable chance of failure. Those investing in this market want to make sure they are diversifying their portfolios to take advantage of that outside potential, should it be successful, but also protect themselves from downside risks,” said Greenspan.