“Core and explore” is an investment strategy involving one stable yield bearing asset, or assets, and a growthier asset class. In a “core and explore” strategy you get paid in yield while your “growth” or “explore” asset goes after capital appreciation. In short, the “core” asset is your base and the “explore” an aggressive pursuit of return.
“Core and explore” can also be called “yield and growth”, and it is perfect for a portfolio of crypto and tokenized sovereign bonds.
In this mix, crypto is the growth asset, and tokenized bonds are the yield assets. Crypto is a growth asset because it has similar characteristics to stocks, the classic growth asset. Stock prices normally go up in line with the growth in earnings and/or cash flow. They can achieve this growth a couple of ways.
First, a company may sell more of an existing product in an existing or new market.
Second, a company may generate sales by developing a new product, or a new use for an existing product.
Crypto fits with both of these growth drivers. First, crypto demand is growing in new markets and countries worldwide. Second, crypto can facilitate small transactions, giving it a huge market in terms of people to grow. Finally, crypto is tapping into new uses from payments to investments, driving demand and growth.
Thus, given crypto’s growth attributes, it is perfect for the “explore” portion of a “core and explore” strategy
Regarding the “core” portion, tokenized sovereign bonds are the best expression. Sovereign bonds are government obligations with the full faith and paying power of a government behind them, decreasing the likelihood that an investor will not be paid back. At the same time, tokenized sovereign bonds can generate an annual yield of between 2 and 13%, providing a stable yield paying asset a “core and explore” strategy needs
What bonds are in the “core” portion and how many is a decision an investor must make. This decision must take into consideration a combination of financial needs and risk tolerance.
The crypto portion of the strategy can be solo exposure to Bitcoin, Ether, Solana or another cryptocurrency. Or it can be a combination of a few. Some investors may see Ether down over 40% year to date and conclude the recovery potential is big enough to warrant inclusion as the “explore” asset. Some may view the “grand daddy” status of Bitcoin, down about 12% year to date, as the best choice for the “explore” portion. Perhaps a combination of the two, or one or two more. Diversification is a sound strategy in both the “core” and “explore” parts of a portfolio.
The next question is the mix of assets. A typical mix could range between 50/50 to 20/80 or 80/20.
Year to date crypto has gotten hit and there could be more downside, so it may be a good idea to dial crypto exposure back, for now. A dialed back crypto exposure could be a portfolio with 30% crypto and 70% tokenized sovereign bonds.
In the end, a “core and explore” strategy with a stable portion and a growth portion makes sense. However, the exact composition must be in line with an investors risk tolerance and investment horizon.
As exciting as this strategy is, there is no one size fits all.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
