ZERO EQUILIBRIUM CRYPTO SERIES: AN OPTIMAL DIVERSIFICATION AND MAXIMIZATION OF RETURNS.


By Chinedu Okoye


Introduction:

Based on our watchlist, we outline five Cryptos that could boost returns whilst ensuring a layer of safety for Naira and USD investors. This we prescribe by a mixture of coins that ensure stability and maximum returns.

We prescribe weightings and explain the rational behind the investment strategy.



Prices and Weightings:

Weightings |Current Price | Price Target
BTC:      35%.           $98,018.          $130,000
USDC:   15%.           $0.99 (N1,724) N1904 ($1)
PAX:      10%.           $2,732               $3,300
DXG:     15%            $86.56.              $ 120
XAUT:   10%.           $2,719.90         $3,150
Others: 15%


Price targets indicate levels at which a pullback would be necessary. The USDC is tagged in Naira given that Naira gains are where we expect the returns to be as the USDC isn't moving far away from the USD.

At current levels, relative to the price target a long position is advicebale however there might be more sophisticated ways of investing.
.


Investment Strategy:

1. Put ¾ of all intended allocations to the above (excluding USDC given the stability of the coin b the USD and possible price appreciation against the Naira).
2. Stor the ¼ in USDC; to be drawn from for dip entries in the rest.
3. Sell highs and buy dips with ⅓ of the USDC allocation, reoatriating the principal on orofit takes.



Rationale Behind the Strategy:

Cryptos are naturally a volatile asset — some with little intrinsic value. But the trend so far in the Crypto market and the involvement of institutional investors make a case for gaining exposure.

The limited supply also means that against the Fiat USD, (all things being equal), Bitcoin can only go up. However other similar volatile cryptos carry enormous risks relative to Bitcoin.

The economic uncertainty has seen both Gold and  crypto rise with stocks and bond yields dip (bond prices decline). The adds additional tailwinds as the market increase exposure to Cryptos. The strategy above plays Gold against crypto.



Merits of the Strategy:

Bitcoin leads the pack of volatile non real assets backed coins. So a limited exposure to these volatile cryptos coupled with a healthy allocation to the above real asset backed cryptos as well as Bitcoin provides investors with a favorable hedge.

Bitcoin provides higher returns, but could experience drawdowns intermittently, however USDC, DGX, PAXG and XAUT provides stability and returns as specified in the table above.

Trading ⅓ of USDC or buying on the dips and selling the extra quota on the rise adds extra gains to your USDC holdings.


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