The volatility of cryptocurrencies is probably one of the most common attributes that people think of when they hear the word Bitcoin or Ethereum. Every now and then, one of my cynical friends would remind me of the major crash in 2018.
“I told you bitcoin is a scam; it will go to zero one day.”
Anybody in the same industry has to admit that they have heard this more than once, sometimes from well-intentioned friends and mostly from gloating skeptics. While Brian Bollinger, Head of Business at CoinGape believes that everyone is entitled to their own opinion, he also a firm believer in the saying put your money where your mouth is.
More often than not, the very person making that comment has neither purchased a single cryptocurrency nor intended to do so. At the same time, they would never take action to support their statement by simply giving the excuse that shorting crypto is risky. Well, we found the perfect response.
Just buy Short-LyCI!
Short-LyCI (Short Lykke Crypto Index) is an inverse index of LyCI. LyCI represents a market-cap-weighted basket of the top-25 cryptocurrencies (excluding security and stable coins). This means that as the price of the top-25 cryptocurrencies goes DOWN, the price of Short-LyCI goes UP, vice versa.
Short-LyCI Service Token is a Utility / Service Token that entitles you to settle at a future date, the live value of the Short-LyCI. This means you can trade Short-LyCI for FIAT in regulated and unregulated markets with ease, and it can be listed to trade on other exchanges.
Purchasing a Short-LyCI Token is different from shorting LyCI. When you go short on an asset, you essentially borrow that asset from someone who has it and sell it in the market in advance. What that means is you have to pay interest for borrowing that asset and that you would likely be required to “return” it by purchasing from the open market within a certain time.
Cap your losses
The single biggest reason why most retail investors do not short an asset is that if they are wrong, the losses are infinite. When the first bitcoin exchange, bitcoinmarket.com, started in 2010, a single bitcoin is priced at US$0.003. Let’s take that you decided to short US$100 worth of bitcoin (33,333 BTC), which seems like a small amount at that time. If you were to cover your shorts today, even if we ignore interest rates, your losses will amount to $336,800,000.00.
When it comes to Short-LyCI Token, you have no such worries of ever incurring an overdraft.
As I have previously mentioned briefly, shorting an asset is essentially borrowing it and selling it in advance. The thing about borrowing is that you have to return it at some point in time otherwise you will be consistently paying interest on that borrowed assets. This limits your ability to hold the position (or HODL) without exposing yourself to a piling sum of interests payable that could potentially negate all the future profits.
One of my favorite bits of jargon from the blockchain/cryptocurrency world is HODL, which started as a misspelling from a drunk Bitcointalk user and eventually became one of the most widely used memes to represent Hold On for Dear Life. With Short-LyCI Token, you can HODL as long as you want.
Intuitively know how much you are making
Forget about difficult formulas or complicated calculations. Starting at 100 on the launch date, Short-LyCI Token tracks the movement of the top-25 cryptocurrencies and proportionately rises or falls in value. Assume that you buy 100 Short-LyCI Tokens on the first day and subsequently the value of top-25 cryptocurrencies drops by half, the value of Short-LyCI Token will now be 200 and you would have made a 100% return. It’s as simple as that!
When LyCI Token was first launched in January 2019, I allocated a significant amount of my portfolio into LyCI Token in order to diversify my holdings. Since then, LyCI Token has risen from $100 to $256, a 156% return in 8 months. Coupled with the lower volatility than most other cryptocurrencies, I found that it was a great move from a risk to a reward point of view. However, I could see some disadvantages in LyCI Token which I believe exist for Short-LyCI Token as well.
Purchasing a Short-LyCI Token is always done at spot price with no room for margin trading. You are unable to potentially magnify your returns, unlike when you short the assets directly. While your losses are capped as we discussed previously, your earnings are also unlikely to be as high as margin trading where you can take a position larger than the assets you have on hand.
Credit risk against Lykke
Short-LyCI Token is a synthetic index that does not have any underlying assets. As such, you assume a direct counterparty risk against Lykke to fulfill the service. Having said that, Lykke has done well in instilling trust in the users. From preparation of audited financial statements to issuing of annual reports and conducting of token holder meetings, the transparent approach has given me a strong assurance…
If at this point, you’re bearish of the cryptocurrency market and want to take action, buying your first Short-LyCI Token is only 3 steps away:
Launch your Lykke Wallet, tap Register and follow the onscreen instructions to get KYC-approved.
After your account is approved, you may put some money into your Lykke Wallet and start buying Short-LyCI.