Crypto Tokenization: fad or future of investment?

Today we are going to discuss a very important topic once again, even if it does not concern a particular trading strategy. Today we are going to talk about the reason why we trade crypto tokens, also known as crypto assets.

And yes, cryptos is first and foremost an ideology of decentralization with Bitcoin on the front line, it’s the idea that you can do without a third party, and all this is through tokenization.

Tokens vs Coins – what is the difference? 

While the line between tokens and coins are grey (due to the overlaps), in summary, a crypto coin’s main purpose is to function as an unit of account, a store of value and a medium of transfer. Blockchain tokens on the other hand, have value too but they cannot be considered as money as crypto coins can. 

Tokens offer functionality above digital cash. Generally, they deliver value to investors beyond speculative returns. It is important to note that as the blockchain technology continues to evolve at the speed of light, all the above mentioned might shape up differently. 

What are the different types of crypto tokens?

Security token

Simply put, it is the digitalization of the right to use a product or service, a voting right, a copyright or a financial asset using a token. Although financial assets have been working electronically for several decades now, what about real assets such as real estate?

For actual assets, the findings could be different. Tokens offer the ability to dismember a real asset and make it easier to own by making it more accessible. This can apply to works of art, real estate and more. Most assets can be tokenized!

The different utilities we have listed above correspond to security tokens, they represent a share of ownership.

Utility token

Next to that, we have utility tokens that are only useful in a specific context and ecosystem. Most of the tokens on the exchange platforms are thus utility tokens that allow you to reduce transaction costs, like the BNB of Binance for example.

Non fungible token

In the world of gaming more precisely, there is another type of token which could undergo a small revolution in the years to come, the NFT or non-fungible token. This simply means that each token is unique with its own characteristics. The most striking example of this type of token is of course the cryptokitties game.

This could well revolutionize the world of gaming by allowing players to sell their unique in-game equipment on the cryptos market.

Now that we know what tokenization is, how can we take advantage of this little revolution?

Trading vs Investing

As for the coins, which are projects with their own blockchain, the tokens are also tradable on the main exchange platforms such as Binance or FTX. We can therefore allocate part of our capital to a short-term trading strategy or use automated bots.

However, if your time horizon is more like that of an investor or if you prefer to invest your capital not on a quantitative strategy but rather based on the fundamentals of a project, then there are several rules to follow.

Know yourself!

Indeed, before you start analyzing the project itself, you need to ask yourself the right questions and the main one will be your risk tolerance. This will allow you to define which part of your capital you want to allocate to the investment in token, ICO or IEO.

This varies from one profile to another and some people will be comfortable with 15% to 20% of their capital allocated to this investment while others will prefer to limit themselves to 5%. For those who, as in 2017, invest 100% of their capital in ICOs and consortia, this is not investment but gambling.

Do your own research!

There are as many opinions as there are investors on the internet and nobody can be held responsible for the investment decisions of others (apart from fraudulent practice)..

It is absolutely necessary to analyze the project from top to bottom while focusing on several elements more important than the others:

The team

The team in charge of a project is one of the most important factors in the field of start-ups, simply because for some of them, we do not yet have a market to compare ourselves with and have to rely on several assumptions.

In all this uncertainty, knowing that the Leads of Project have strong expertise backed by deep experience, whether in a large company or in a similar project, is a sign of confidence.

Potential market

This is also an extremely important element because it will define whether the project will be feasible and could potentially take off. In the case where different projects are already competing in the same market, the investor will ask himself the following question: What will this project bring in addition to its competitors. If you find the answer, or if the answer is simply the same and better, it is encouraging.

In the case where a market does not yet exist for token, which is increasingly rare in 2020, we will look at how the project will disrupt the traditional market. We will think in particular of projects for reselling green energy between individuals, even if it is not yet fully completed, remains promising.

Token distribution

From an investor’s point of view, when we analyze an ICO, we like to see a project with a healthy token distribution, i.e. a share of the tokens reserved for the team that is not too large.

If in addition there is a token buy-back and burn-in mechanism, that’s another good point for the investor.

Is investing in tokens for me?

That will depend on your answers to our previous questions! If you know your investor profile and you are ready to allocate part of your capital to a “high risk – high reward” share, then it may well be the right thing for you!

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