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Managing Risk in your Crypto Portfolio- an Introduction

April 30, 2018

It’s not easy to succeed with any sort of blockchain-related investing due to the volatility of the industry at this time. Chris Burniske and Jack Tatar’s work, “Cryptoassets,” provides worthwhile guidance on the subject while relating said guidance to traditional investing advice.

 

All of this guidance exists in the book’s section called, “Preparing Current Portfolios for Blockchain Disruption.” With a brief explanation of the central point that this section aims to put forward, it is hoped that the average investor can begin to feel more at ease with managing the volatility in his or her crypto-portfolio.

 

Burniske and Tatar begin by suggesting that the first thing to keep in mind when beginning to invest in crypto projects or what they call “crypto assets,” is that the entire concept of the blockchain can and should disrupt just about every industry.

 

Following this, the authors get into real-world examples of blockchain disruption to illustrate how a certain kind of analysis can help the average investor. The first mentioned example or use-case relates to the remittance market.

 

Burniske and Tatar ask you to take the example of blockchain firms moving directly into remittances, which Stellar and others are actually doing, and then ask yourself: how is this going to effective the existing market dominance? Of course, a myriad of other questions exist that can be applied in this way but this is the suggested starting point.

 

In zoning in on the answer to questions like this, Burniske and Tatar recommend using the theoretical lens of exponential disruption. In short, all this means is considering every possible issue and change that could come about related to the blockchain, with the existing ideas related to disruption and disruptive technologies as your foundation for how you would act on this change.

 

One author that both recommend becoming quite familiar with is Harvard’s own, Clayton Christensen. He’s known, globally for his works related to theory on how businesses should act on and capitalize on disruption and disruptive technologies.

         

You might be asking at this point: what exactly do we mean here by disruption and disruptive technologies?

 

It’s actually quite simple. Disruption in business and in technology means something like a product that comes in and makes all of the most powerful products in the space, obsolete. Disruption is the specific type of innovation that applies to the blockchain, even now.

 

Burniske and Tatar suggest that investors need to account for this as well as the possibility that incumbent companies will fight back by “reinventing” themselves as “blockchain” companies so that they retain their market dominance. When they have both in mind, then the entire portfolio and its long term plan should be built around these ideas.

 

With these possibilities  under consideration, one can move on to traditional financial analysis with metrics like market cap, price-to-earnings-ratio, and many more. With disruption as your theoretical lens, the volatility should feel less like it’s always looming overhead.

         

 

 

By: BGN Editorial Staff

 

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