A global pandemic, oil shocks, and US-Iranian tensions have coincided to rock global markets, sending traditional and alternative assets into a bloodbath.
In fact, the COVID-19 coronavirus is likely to trigger a global recession. The Dow has experienced its biggest decline since the 2008 Great Recession, and even cryptocurrency markets have fallen into a tailspin, with Bitcoin experiencing its biggest crash in more than a year.
Security Tokens — which are equity, debt, and real assets put on the blockchain for greater efficiency — are unlikely to be affected much, if at all.
In fact, private equity, which is much of what Security Tokens represent, is more able to capture the upside in a market downturn.
As the Boston Consulting Group writes:
“Instead of freezing investment activity and retrenching, as many did during the previous recession, top players will use their strong capitalization and operational health to capture the upside of a downturn — pursuing growth and accelerating business transformation.”
In simpler terms, we can extend this logic to Security Tokens, which are firmly outside the current traditional market, and can, therefore, look for ways to grow and accelerate without worrying about NASDAQ or NYSE.
The same fear and greed, however, not only is not as present in the slower-paced and more value-focused private markets, but it has nowhere to settle. While many complain that Security Token markets haven’t yet built the needed infrastructure, such as scalable, compliant, and user-friendly Security Token exchanges in order to achieve liquidity, we can now see that it’s a double-edged sword.
Even if you wanted to, you’re more likely than not stuck with your Security Token — and that’s not a bad thing.
In fact, this market is all about the long term. Security Token players are building a market from scratch, so selling off during a downturn doesn’t even enter most investors’ minds.
“For PE firms, a downturn represents opportunity. They can plan and invest over the long term, enabling them to deploy capital at more attractive terms, and make bold, calculated moves without being hamstrung by the short-termism that afflicts so many public companies.”
While there’s no guarantee in the stability of more illiquid assets during a market crash, you’re less vulnerable to panic selling.
Of course, Security Tokens are not the end-all-be-all, and additional actions should be taken to protect yourself during a recession, such as portfolio diversification, particularly into uncorrelated alternative investments. Investment opportunities like CRYPTO20 let you diversify among the top 20 crypto assets.
In conclusion, we’re seeing a case study in the making of the benefits of illiquidity: Security Token investors are insulated from global panic selling.