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Bitcoin Should be Added to an Investment Portfolio Finds Study

Bitcoin performance compared to other assets up to 2019

After analyzing a portfolio with and without bitcoin, a study says the “robustness check confirms the findings and also advocates for the cryptocurrency to be added to the portfolio.” The…

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After analyzing a portfolio with and without bitcoin, a study says the “robustness check confirms the findings and also advocates for the cryptocurrency to be added to the portfolio.”

The study by economists at Warsaw University says “we want to verify if an inclusion of Bitcoin into the portfolio consisting of different market assets moves the efficient frontier… We check if Bitcoin is able to gain some substantial weight and improves the risk-return profile of the whole portfolio.”

They say “the empirical analysis is based on the comparison of the portfolios with and without Bitcoin in the context of two Markowitz criteria of optimization.

We track the behavior of the portfolio consisting of 10 traditional assets
(representing equity, fixed income, money market, commodities, real estate markets) over a certain period of time. Then we add to it Bitcoin and look at the performance measures…

The historical observations cover the period from 1.05.2013 to 24.05.2019 providing us with 73 months of daily prices of 11 assets.”

Bitcoin correlation with other assets up to 2019
Bitcoin correlation with other assets up to 2019

In line with numerous studies they firstly find that bitcoin does not correlate with other assets, making it a portfolio diversifier.

After much analysis they then conclude that “including Bitcoin in the portfolio indeed improves its efficiency.”

“The bitcoin-inclusive portfolios perform better than those consisting solely of traditional assets,” they say, adding:

“The findings are robust in regard to the different optimization criteria in our study – expected mean return maximization and expected shortfall (CVaR) minimization.

Adding bitcoin to Markowitz-optimized portfolios as well as to an equally weighted one improves their performance.”

The results are strong enough for these economists to recommend the inclusion of bitcoin in an investment portfolio.

While another study found that bitcoin is a hedge against oil, making that a very new one, although this oil hedge study does not seem to have gone through peer review.

These are just the latest studies adding to an academic corpus on bitcoin with different methods of analysis still leading to the same results: bitcoin is a diversifier and increases risk adjusted returns.

The conclusion of these studies has partially been the foundation of the entrance of institutional investors, but their adoption has been somewhat small scale, with pension funds for example still not quite incorporating bitcoin in their investment strategies.

However as these academic foundations continue to be built, financial advisers may move more and more towards recommending the addition of bitcoin in investment portfolios so as to increase risk adjusted returns.

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Chinese Crypto Purchases Signal Asian Corporate Attention

The Chinese company Meitu announced on Mar. 7 the purchase of 5,000 ETH and more than 379 BTC. The purchase, on Mar. 5, is part of an investment plan using cash reserves. Meitu’s business focus is in image and video processing as well as social media. In the announcement, the company states that its Board … Continued

The post Chinese Crypto Purchases Signal Asian Corporate Attention appeared first on BeInCrypto.

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The Chinese technology company Meitu purchased millions of dollars of BTC and ETH from its corporate reserves.

The Chinese company Meitu announced on Mar. 7 the purchase of 5,000 ETH and more than 379 BTC. The purchase, on Mar. 5, is part of an investment plan using cash reserves. Meitu’s business focus is in image and video processing as well as social media.

In the announcement, the company states that its Board sees blockchain as being in a state “analogous to the mobile internet industry circa 2005.” Moreover, Meitu sees its purchases in differing lights.

Moving into Blockchain

Meitu sees the Ethereum chain as a natural place for its own exploration into blockchain. The company might use it for Gas or for investing into blockchain-based projects that take ETH.

Bitcoin as an Asset

Meitu made the Bitcoin purchase primarily for asset diversification. First and foremost, Meitu sees Bitcoin as a superior store of value. The company’s analysis compared BTC to gold, precious stones and real estate.

Asian Attention

Observers quickly noticed the fact that a Chinese corporation made the purchase. 

The focus on U.S. companies buying crypto from corporate reserves is not a surprise. As just one example, Bitcoin bull Michael Saylor, the CEO of MicroStrategy, has stayed in the spotlight since the company’s initial purchase of BTC in August 2020.

How-to Books

MicroStrategy literally wrote the book on corporate reserves purchases of Bitcoin, at least for the American market. On Feb. 5-6, the company held a remote conference in which it explained the legal and accounting measures required for American corporations to follow in the process. The company also made available for free a download of its internal playbook used when making such purchases.

Increasing Competition

The Meitu purchase is an example of how widespread this cryptocurrency bull run has become. Asian corporate purchasers are now emulating their American counterparts. 

Closer to the U.S., though, investment companies face pressure of a different kind. Canadian investment firms are ahead with Exchange Traded Funds (ETFs). The Purpose Bitcoin Fund, which is traded on the Toronto Stock Exchange, is the first Bitcoin ETF in North America. 

Not to be outdone by the Bitcoin crowd, the world’s first Ethereum ETF has been given preliminary approval for trading on the Toronto exchange as well.

Given the growing competition for increasingly scarce BTC at hand, MicroStrategy might need to write the book on how to find it in the first place.

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All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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James Hydzik is a finance and technology writer and editor based in Kyiv, Ukraine. He is especially interested in the development of regulation in the face of increasingly rapid technological change. He previously covered the CEE region for Financial Times banking and FDI magazines. An ardent believer in gut renovating eastern Europe one flat at a time, he currently holds more home renovation gear than crypto.

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Source: https://beincrypto.com/chinese-crypto-purchases-signal-asian-corporate-attention/

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What is Aave? An Overview of the Budding DeFi Lending Platform

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Aave is a decentralized, open-source, non-custodial liquidity protocol that enables users to earn interest on cryptocurrency deposits, as well as borrow assets through smart contracts.

Aave is interesting (pardon the pun) because interest compounds immediately, rather than monthly or yearly. Returns are reflected by an increase in the number of AAVE tokens held by the lending party. 

Apart from helping to generate earnings, the protocol also offers flash loans. These are trustless, uncollateralized loans where borrowing and repayment occur in the same transaction. 

Assets on Aave as of 3/7/21 (source: aave homepage)

Assets on Aave as of 3/7/21 (source: aave homepage)

The following article explores Aave’s history, services, tokenomics, security, how the protocol works, and what users should be wary of when using the Aave platform.

How Does Aave Work?

The Aave protocol mints ERC-20 compliant tokens in a 1:1 ratio to the assets supplied by lenders. These tokens are known as aTokens and are interest-bearing in nature. These tokens are minted upon deposit and burned when redeemed. 

These aTokens, such as aDai, are pegged at a ratio of 1:1 to the value of the underlying asset – that is Dai in the case of aDai. 

The lending-borrowing mechanism of the Aave lending pool dictates that lenders will send their tokens to an Ethereum blockchain smart contract in exchange for these aTokens — assets that can be redeemed for the deposited token plus interest.  

atokens on Aave

atokens on Aave

Borrowers withdraw funds from the Aave liquidity pool by depositing the required collateral and, also, receive interest-bearing aTokens to represent the equivalent amount of the underlying asset.

Each liquidity pool, the liquidity market in the protocol where lenders deposit and borrowers withdraw from, has a predetermined loan-to-value ratio that determines how much the borrower can withdraw relative to their collateral. If the borrower’s position goes below the threshold LTV level, they face the risk of liquidation of their assets.

Humble Beginnings as ETHLend 

Aave was founded in May 2017 by Stani Kulechov as a decentralized peer-to-peer lending platform under the name ETHLend to create a transparent and open infrastructure for decentralized finance. ETHLend raised 16.5 million US dollars in its Initial Coin Offering (ICO) on November 25, 2017.

Kulechov, currently serving also as the CEO of Aave, has successfully led the company into the list of top 50 blockchain projects published by PWC. Aave is headquartered in London and backed by credible investors, such as Three Arrows Capital, Framework Ventures, ParaFi Capital, and DTC Capital.

ETHLend widened its bouquet of offerings and rebranded to Aave by September 2018. The Aave protocol was formally launched in January 2020, switching to the liquidity pool model from a Microstaking model.

To add context to this evolution from a Microstaking model to a Liquidity Pool model, Microstaking was where everyone using the ETHLend platform. Whether one is applying for a loan, funding a loan, or creating a loan offer, they had to purchase a ticket to obtain the rights to use the application, and that ticket had to be paid in the platform’s native token LEND. The ticket was previously a small amount pegged to USD, and the total number of LEND needed varied based on the token’s value. 

In the liquidity pool model, Lenders deposit funds to liquidity pools. Thus creating what’s known as a liquidity market, and borrowers can withdraw funds from the liquidity pools by providing collateral. In case the borrowers become undercollateralized, they face liquidation.

Aave raised another 4.5 million US dollars from an ICO and  3 million US dollars from Framework Ventures on July 8th and July 15th, 2020. 

Aave Pronunciation

Aave is typically pronounced “ah-veh.” 

Aave’s Products and Services

The Aave protocol is designed to help people lend and borrow cryptocurrency assets. Operating under a liquidity pool model, Aave allows lenders to deposit their digital assets into liquidity pools to a smart contract on the Ethereum blockchain. In exchange, they receive aTokens — assets that can be redeemed for the deposited token plus interest.

Aave's functionality

Borrowers can take out a loan by putting their cryptocurrency as collateral. The liquidity protocol of Aave, as per the latest available numbers, is more than 4.73 billion US dollars strong. 

Flash Loans

Aave’s Flash loans are a type of uncollateralized loan option, which is a unique feature even for the DeFi space. The Flash Loan product is primarily utilized by speculators seeking to take advantage of quick arbitrage opportunities. 

Borrowers can instantly borrow cryptocurrency for a matter of seconds; they must return the borrowed amount to the pool within one transaction block. If they fail to return the borrowed amount within the same transaction block, the entire transaction reverses and undo all actions executed until that point. 

Flash loans encourage a wide range of investment strategies that typically aren’t possible in such a short window of time. If used properly, a user could profit through arbitrage, collateral swapping, or self-liquidation.

Rate Switching

Aave allows borrowers to switch between fixed and floating rates, which is a fairly unique feature in DeFi. Interest rates in any DeFi lending and borrowing protocol are usually volatile, and this feature offers an alternative by providing an avenue of fixed stability. 

For example, if you’re borrowing money on Aave and expect interest rates to rise, you can switch your loan to a fixed rate to lock in your borrowing costs for the future. In contrast, if you expect rates to decrease, you can go back to floating to reduce your borrowing costs.

Aave Bug Bounty Campaign

Aave offers a bug bounty for cryptocurrency-savvy users. By submitting a bug to the Aave protocol, you can earn a reward of up to $250,000.

Aave Tokenomics

The maximum supply of the AAVE token is 16 million, and the current circulating supply is a little above 12.4 million AAVE tokens.

Initially, AAVE had 1.3 billion tokens in circulation. But in a July 2020 token swap, the protocol swapped the existing tokens for newly minted AAVE coins at a 1:100 ratio, resulting in the current 16 million supply. Three million of these tokens were kept in reserve allocated to the development fund for the core team. 

Aave’s price has been fairly volatile, with an all-time high of $559.12 on February 10, 2021. The lowest price was $25.97 on November 5th, 2020. 

Aave Security

Aave stores funds on a non-custodial smart contract on the Ethereum blockchain. As a non-custodial project, users maintain full control of their wallets. 

Aave governance token holders can stake their tokens in the safety module, which acts as a sort of decentralized insurance fund designed to ensure the protocol against any shortfall events such as contract exploits. In the module, the stakers can risk up to 30% of the funds they lock in the module and earn a fixed yield of 4.66%. 

The safety module has garnered $375 million in deposits, which is arguably the largest decentralized insurance fund of its kind. 

Final Thoughts: Why is Aave Important?

Aave is a DeFi protocol built on strong fundamentals and has forced other competitors in the DeFi space to bolster their value propositions to stay competitive. Features such as Flash loans and Rate switching offer a distinct utility to many of its users.

Aave emerged as one of the fastest-growing projects in the Summer 2020 DeFi craze. At the beginning of July 2020, the total value locked in the protocol was just above $115 million US dollars. In less than a year, on February 13, 2021, the protocol crossed the mark of 6 billion US dollars. The project currently allows borrowing and lending in 20 cryptocurrencies.

Aave is important because it shows how ripe the DeFi space is for disruption with new innovative features and how much room there is to grow.

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Source: https://coincentral.com/what-is-aave/

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Bitcoin returns above $50,000 again

TL;DR Breakdown Bitcoin price surges above $50,000 Altcoin market go green After the entire crypto market stabilized yesterday with Bitcoin price roaming directly below $50,000, the coin has finally broken the resistance and now trades above $50,000. It leaped 5 percent higher to cross the $50,000 threshold for the third time this year and trades […]

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TL;DR Breakdown

  • Bitcoin price surges above $50,000
  • Altcoin market go green

After the entire crypto market stabilized yesterday with Bitcoin price roaming directly below $50,000, the coin has finally broken the resistance and now trades above $50,000.

It leaped 5 percent higher to cross the $50,000 threshold for the third time this year and trades at the time of writing for $51,005, according to Binance mobile app. Amidst BTC‘s extreme volatility recently, the price dipped from $58,000 to $49,000 overnight.

Amidst the high volatility, a chart shared by Glassnode showed that new Bitcoin buyers didn’t panic sell during the correction. It indicates growing confidence in the currency’s long-term prospects.

Also, business analytics firm MicroStrategy continued its bullish Bitcoin buying spree amidst the dipping price and high volatility. They bought $10 million more BTC, making their total coin hitting $4.4 billion.

Altcoin market follows Bitcoin to return green

The other cryptocoins also lined-up behind BTC to begin correction and find their way up.

Ethereum, the altcoin with the highest market cap, rose by 7 percent. However, at $1,667, it’s still 17 percent shy of its ATH of over $2,000 only weeks back. Similarly, XRP, BCH, EOS, DOGE, among others, have also been going back up.

Also, the decentralized finance (DeFi) coins are on the up, too. Uniswap’s UNI observed the highest growth in the top 10 currencies by market capitalization. The native token of the world’s largest decentralized finance exchanges surged over 12 percent overnight to trade at $31.41. That makes for a seven-day growth of 40 percent.

AAVE coin, which powers decentralized lending, also experienced similar growth. Aave’s token grew 10 percent overnight to land at $404.95. That’s still almost 30 percent down from its all-time high of $559.12 this time last month.

The surge comes days after Aave CEO Stani Kulechov spoke about being involved in yield farming, calling current yield farming practices “pretty much printing money.”

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Source: https://www.cryptopolitan.com/bitcoin-returns-above-50k-again/

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