An Exclusive AMA with SmartHODL

Mudrex Coin Set is our flagship product designed for the everyday investor. A few Coin Sets are internally curated and designed, while some are built by third-party managers. SmartHODL is one of them. Most of you might have invested in the Coin Sets designed by them but are not aware of what SmartHODL is — It is an analytics firm of quants focused on running quantitative crypto strategies. 

Here is an interview with the team to know their thoughts behind coming up with a Coin Set like SmartHODL Large Cap Index, SmartHODL Metaverse Index, SmartHODL NFT Index, and SmartHODL Strategic Vol Index.   

1. What inspired SmartHODL toward cryptocurrency?

SmartHODL was inspired by the inclusive and value-based system that forms the foundation of the crypto ecosystem. It was something that we hadn’t seen before. We are glad that we got to play an active part in it. 

2. What was the idea behind creating a Coin Set like SmartHODL? 

SmartHODL is a group of quants who initially worked for the traditional financial system and found the decentralized world to be more welcoming. After realizing the potential of decentralization, the group focused on passive and low-cost index funds in cryptos. SmartHODL will also be expanding into smart beta index funds soon. 

3. On what basis did SmartHODL choose the tokens in the Coin Set?

Since our primary focus is on deploying index funds, all our strategies are aligned with token allocations systematically and automatically. We have software that runs on the cloud that monitors, rebalances, and reconstitutes our strategies round the clock so that infrastructure does the heavy lifting when making allocation decisions.

4. What kind of mindset should a Coin Set holder have?

The best mindset that a Coin Set holder can have is to aim for long-term returns as the crypto asset class is incredibly young. Traditionally, the best investment strategy for both retail and institutions has been buying and holding the top-performing assets in a well-balanced fund. In the traditional world, that would equate to mutual funds and ETFs. In the decentralized world, that equates to Coin Sets.  

5. A lot of investors are experiencing volatility for the first time. How to tackle it?

We recommend that investors hold on and stack their tokens, commonly called diamond hands. Unless you need cash flows, selling assets is the worst strategy. You want to be the one acquiring assets at a discount, not selling them at a discount. You’ll be happy you did this once the market turns around. This is the time to keep your head down, work hard, and invest.

6. How do SmartHODL look at volatility in the market – as a turbulent phase or something that is and will be part and parcel of being in the markets?

Volatility is the cost of investing. The more volatility, the more potential growth. This is true for any market. Especially for the crypto market, we believe this is the case because the crypto ecosystem is so young and inclusive, similar to the internet back in the mid-1990s, so we shouldn’t be surprised by the volatility. The data shows that, over time, volatility is dampening as the crypto market matures and consolidates, but that doesn’t change the fact that it’s relatively intense compared to other markets. We like to look at this as a good thing because if you can handle the crypto market, you’ll be rewarded more generously in the future than in any other market. 

7. With crypto markets starting to be looked at as long-term wealth-building tools, how can Recurring Investments or SIPs be helpful?

Recurring investments are a kind of wealth-building tool. Before officially launching SmartHODL, we have implemented investment and trading strategies on our exchange accounts. This helps us deploy our strategies to the world and diversify by regularly investing in our and others’ strategies efficiently.

8. What things did SmartHODL consider while creating a crypto index? 

An index needs to be systematic and automatic, of which iron-clad, rule-based decisions are at heart. So, it’s essential to create a set of rules that the index follows. The index is broken when you tinker with these rules and inject human emotion (which can be tempting). It becomes an active, discretionary fund and no longer serves those in need of passive investment products.

9. What are the advantages of investing in a Coin Set rather than investing in a single token. 

Everyone knows the saying “don’t put all your eggs in one basket”, especially for those active in investing. In the crypto market, tokens can go to zero or the moon. As investors, wealth creation and preservation are vital when investing in a regularly balanced, diversified investment portfolio. What’s excellent for crypto investors is that we now have easy access to that exact investing style with Coin Sets.

10. What challenges did the team encounter while creating this Coin Set? 

The most challenging part of creating a crypto index is the allocation of asset weights. The spread between market capitalizations can be enormous in crypto, resulting in the top assets (like Bitcoin and Ethereum) overcrowding the index. It was tempting for some asset managers to implement a simple equally-weighted allocation, but that was not representative of the real crypto market. So, we solved this problem within the SmartHODL indices by creating our proprietary market capitalization metric, which produces an asset allocation that represents the market accurately while also reducing the possibility of oversized allocations.

11. How can web3 change the way people interact? 

Web3 allows people to own a part of a network, not just participate in a network. Those participating have skin in the game. Thus, we believe people will interact more rationally and collaboratively. These networks have real-world effects through governance, capital allocation, and value growth, forcing incentives to align and encourage people to work together to produce positive outcomes.

12. What impact did the crypto industry make in the post-pandemic era?

We think an increased emphasis on decentralization and trustless systems emerged following the pandemic. But the crypto industry has both the qualities to the extreme since its inception by exponential technology, and we believe that’s the direction the world is generally heading.

13. How would the crypto industry look like in the next 5 years?

For most industries, there’s been an apparent misallocation of capital since the great financial crisis, primarily due to easy money by governments and central banks. The same goes for the crypto industry since many projects either add no real value or are VC-funded. Within the next 5 years, we may see many projects falling off the map because people realise these projects don’t do anything useful or the money that funded them is gone. Of course, a few exceptional projects will make it through, and those are the ones to invest in, which is what a crypto index that tracks the top market cap tokens is meant to do.

14. Any advice for new crypto investors? 

Investors should have a set percentage of their earnings deployed into investments every time they accumulate cash. Dollar-cost averaging (DCA) should be part of their employment or business earnings. Since volatility is inevitable, investors should learn to embrace volatility. Years down the line, those who can hold and stack during both the ups and downs will be those who have a strong foundation of assets that could form the basis of their future wealth.

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