Dark clouds are hovering over the crypto market: instead of dream returns, there are only long faces to be seen in the striving community at the moment. Prices of crypto stocks have plummeted in the wake of rampant inflation and the resulting turnaround in interest rates.
A glance at the price history of Bitcoin, the oldest and currently largest crypto stock, shows that a protective mechanism against high losses can make absolute sense. The value of Bitcoin has now more than halved since the high for the year of around USD 48,200 reached in March. It is not only Bitcoin, though: the entire global crypto market has been on a downward spiral since November 2021. While the total market value of all crypto stocks stood at around USDtn 3.2 at its highest, now the figure is not even a third of that.
Significant fluctuations in crypto stocks are actually nothing new in the still young crypto market, volatility having also been exceptionally high in the past. At the turn of 2017/18, for instance, Bitcoin plunged from about USD 17,000 to 7,000. From April to June 2021 it again suffered a collapse of more than 50 per cent. Looking back from 2013 to today, there have been 220 days on which Bitcoin closed the day down 5% or more – equivalent to almost a whole trading year with negative returns. This contrasts, though, with 292 days when the daily closing price was at least 5% higher. Ultimately, a look in the rear-view mirror shows that investors who have been able to withstand hefty setbacks have usually been rewarded with high profits shortly afterwards. Between 2013 and today, after all, Bitcoin has generated an impressive return of around 120% per annum. The crux is that probably only a very few investors have nerves resilient enough to profit from such price jumps.
With a view to optimising the risk/return ratio, the crypto and product experts at Leonteq have gone to work and developed a particularly innovative and so far unique index solution for Bitcoin.
The key to success lies first and foremost in limiting the loss potential of Bitcoin. The concept is based around the idea of keeping some 80% of the 1-year index peak in a cash reserve while investing the rest in Bitcoin. As the index peak can change from day to day, however, the allocation is monitored on a daily basis and adjusted accordingly.
To avoid excessive trading and the associated costs, the cash reserve is only adjusted if the necessary restructuring exceeds one per cent of the current index level.
The index is designed so that the maximum possible loss of value on a 1-year basis is limited to about 20 per cent (although there can be several successive 1-year loss periods, so that index losses of more than 20 per cent over several years are possible). The Leonteq experts have implemented the index concept described above in the “Leonteq Bitcoin Lock-in 80% Index”.
The allocation mechanism as described means that there is in principle a complete transformation of Bitcoin. The Leonteq Bitcoin Lock-In 80% Index cannot therefore be compared with a direct investment in Bitcoin. Rather, it is a product with tailored risk control.
The concept is more than just an index, however. Leonteq has created a sort of toolbox which allows any asset manager to craft an individual strategy for their clients. In this Leonteq Bitcoin Lock-In 80% Index, 80% of the 1-year index peak is held in the cash reserve. Asset managers can also define the level and time periods for their own solutions, though (such as a conservative variant where 90% of the 2-year index peak is kept invested in the cash reserve, or an aggressive variant where only 60% of the 6-month index peak is kept invested in the cash reserve). What is more, the concept can also be employed for a huge variety of crypto stocks.
And that's not all: other asset classes such as equities also function as the underlying. That the underlying must trade at a high volatility is of central relevance for the concept. It is important that asset managers can select freely from the toolbox and that Leonteq packages the resulting strategy in a viable investment solution.
The advantage is that this gives even defensive investors an opportunity to invest in speculative instruments.
To conclude, the Leonteq Bitcoin Lock-In 80% Index is a conservative index concept that leads to lower volatility and a much better risk/return ratio overall despite the underlying having an above-average degree of fluctuation.
Investors can bring this promising concept into their portfolio conveniently and at low cost through a tracker certificate on the Leonteq Bitcoin Lock-In 80% Index. Quoted on the SIX Swiss Exchange, the open-end product comes with a management fee of 1.00% p.a. and a transaction fee at index level of 0.5% despite the sophisticated process.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.
Investments in products referencing one or more cryptocurrencies or indices of cryptocurrencies are subject to increased volatility compared to investments in traditional assets and to specific risks which can negatively impact the value, tradability,liquidity and/or security of such investments. Potential Investors are encouraged to inform themselves about these specific risks when considering an investment in products referencing one or more cryptocurrencies or indices of cryptocurrencies. A summary of key risks relating to products referencing one or more cryptocurrencies or indices of cryptocurrencies can be found here.