by Jamie Finn, President of Securitize
Jan 28, 2022
The Omicron wave of Covid-19 coupled with high inflation, supply-chain issues, and the increase in public market volatility has left the United States economy upside down and backwards. Restaurants and many other service industry businesses are still struggling to maintain enough healthy workers to keep their doors open. The continued inability to travel like we used to is leaving consumers with excess cash to spend locally, exacerbating the supply chain shortage and fueling inflation. Even blue-chip bank stocks, such as Goldman Sachs and JPMorgan, which exceeded earnings expectations, are feeling the inflationary pressures reflected in their lowered valuations at the start of 2022.
Suffice it to say that it's never been more important for investors to diversify to protect their portfolios and to seek meaningful returns. How do investors accomplish this in an economic environment when up is down and down is up?
Alternative investments like real estate, art and private equity have helped investors course-correct in times of uncertainty. For instance, after the Covid-19 induced stock market crash in March 2020, we saw private capital markets bounce back faster with more deal volume and higher valuations than public markets. Compared to the S&P 500 over the same period, tokenized private market data shows that alternatives simply outperform.
During March 2020, tokenized funds like Blockchain Capital remained even despite unprecedented volatility, while the S&P index dropped by nearly 34%. Others such as SPiCE VC popped by 25% in April 2020, nearly doubling in net asset value by year end. This performance under pressure demonstrates the value of alternative asset allocation in uncertain economic environments.
For those with long-term investment horizons, new cryptocurrency yield funds1 like Securitize’s USDC Yield Fund2, 3 currently offer annual percentage yield (APY) rates of up to 9.67%.* This not only exceeds traditional savings accounts by more than an order of magnitude, it offers a new potential way for investors who want more out of their cryptocurrency to earn additional yield. We see this fund as a middleway for investors seeking returns ranging between 7% (the standard S&P benchmark) and more traditional alternatives.4
With alternative investments like private equity and art averaging 14% annual returns for the past 25 years, allocating capital to alternative vehicles seems like a potential no-brainer. Financial literacy and access, however, have both been barriers to entry.
Alternative investments have historically been executed over the counter and available only to accredited and institutional investors. In Q4 2021, accredited investor status expanded to include securities certifications like the Series 7, 65, and 82, giving those with certified expertise the power to invest in alternatives.
These regulatory changes significantly expanded the scope of capital allocation for regulated crowdfunded raises, boosting businesses’ capital limits so that more funds can be raised every 12 months. With more than 13.6 million accredited investors in the United States representing $73.3 trillion in cumulative wealth, the potential to unlock alternatives for both businesses and investors is enormous. The enhancement also lowers the operational expenses of founders needing to go out and raise money to support their businesses and opens the door to struggling sectors of the economy like the arts and entertainment – areas where alternative investments shine.
Thanks to new technology like Securitize iD and Securitize Markets 5, 6 enabling more than 430,000 registered users to participate in alternatives, the barrier to entry is lower than ever before. How much lower? Our user base has increased by nearly 30,000 since Q4 2021. Now, more founders can achieve more capital raises that ensure compliance standards are adhered to using one tool instead of jumping through many hoops to raise money through traditional venture capital. This streamlined process makes investing in alternative assets easier and more straightforward for all parties involved.
As public markets surge up and down and the Fed reacts to high inflation, we are continuing to see the private sector grow. We saw this at the end of Q4 2021 when the two largest tokenized VC firms, Blockchain Capital and SPiCE VC, posted significant gains, and we see it again in Q1 2022 as other tokenized funds continue to perform amid extreme public market volatility.
With assets that have historically outperformed the S&P benchmark, it’s easy to see why investors who can gain access to alternatives through education might want to, and why accredited investors who already have access would want to manage their alternative investments all from one place. Bringing these pieces together enables comprehensive portfolio management for certified Series-holders and traditionally accredited investors alike.
While market variables will always change, having access to the most complete dashboard can give investors the clarity needed to make informed decisions. So, when volatility spikes, investors with downside protection can keep an even keel. With compounding factors like the pandemic, inflation, and supply-chain issues, investors looking to ride out the storm can find potential cover in alternative investments.7
Digital assets or tokens using blockchain, are speculative, involve a high degree of risk, are generally illiquid, may have no value, have limited regulatory certainty, are subject to potential market manipulation risks and may expose investors to loss of principal.
Blockchain investing involves a degree of risk that can be different from traditional markets. These risks include, but are not limited to, risk of regulatory uncertainty, market adoption, market manipulation, market exiting, price volatility and security risk.
Trading cryptocurrencies carries a high level of risk and may not be suitable for all investors. Anyone wishing to invest should seek his or her own independent financial or professional advice. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.
Past performance is no guarantee of future results.
Securitize Markets is an SEC-registered broker-dealer, FINRA member and operator of Securitize Markets ATS, and an SEC-regulated Alternative Trading System (ATS).
Securitize Markets is an affiliate of Securitize Capital, LLC, (Securitize Capital) both of which are wholly owned by Securitize, Inc., their parent company. James Finn and Carlos Domingo are general partners of Securitize Capital. James and Carlos are general partners in certain yield fund offerings that we are retained to provide services and receive payments for, thus, creating a conflict of interest.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.