We have previously given an introduction to crypto-currencies without mentioning where DS has actually invested, and this post will not only detail the investment it has made, but also go through risks and advantages of this specific coin we purchased, let us introduce CoinDonkey.
What is CoinDonkey?
Ok, I grant you the name is not my favourite, nor do I find their logo with a donkey apparently pooping Bitcoin of very good taste. Despite those flaws, this FinTech offered DS exactly what it was looking for, namely a way to access crypto-markets in a relatively well documented and accountable way.
This FinTech offers an investment to individuals and companies based on mining of cryptocurrencies such as Bitcoin and Ethereum. Their unit is called MS – each worth little less than one thousand Euros – and they accumulate daily credits for their investors.
Concept
In practical terms, the investor sends CoinDonkey the selected invested amount – from 99 Euros for 0,1 MS – and similarly to a traditional investment daily income accrues. The company also sends a monthly report detailing how much interest accrues each day. In DS’s case, it bought one MS for 990 Euros, and has been since receiving a bit more than 20 Euros every month since, which is a decent 2% per month return. The income can be repaid to a bank account – or virtual wallet in Bitcoin or Ether – as soon as the minimum 100 Euros is reached, or alternatively reinvesting is also possible.
For those less familiar with mining, the idea is to make computer-power available to support the blockchain of one crypto-currency, and for doing so they get original coins as a reward. In CoinDonkey’s case, mining happens in Germany, US and Iceland – and uses at least partially renewable energy. Since the computers you use for this are not purpose-build, the actual costs of mining are much more related to the energy bill they generate, so from what I know a significant part of mining is in low energy-cost countries, but luckily this does not seem to be an impediment to CoinDonkey.
Benefits
On a more positive note, CoinDonkey offers the possibility of income coming in indefinitely, they even advertise you can transmit it to your descendants (!) when you die. More relevant to us in the short term, the company offering this investment is not only a registered German entity, but they also provide documentation for all the financial transactions from initial investment to each daily credit to the account. We consider that accounting of this investment in the investing company’s books is significantly easier and more transparent than other investments in cryptocurrencies, especially if your income would come from trading. Once DS’s Steuererklärung (tax return) 2017 is done, we can post about how simple this reporting really was.
So, when asked if I buy Bitcoin or if I invest in cryptocurrencies, my answer is no and yes respectively. A few years back, I did buy Bitcoin to know more about how it worked. Even though the returns were excellent on that test-run, I never felt it was a sustainable and transparent investment, I actually learned more about it studying than trading.
In this sense, I honestly can’t recommend buying Bitcoin other than to hold it and see what happens, or if you want to speculate and try to make some money. The yes part, on the other hand, relates to investing your time to know more about blockchain and cryptocurrencies, which is absolutely worth it. Cool FinTechs such as CoinDonkey offer an easy to buy investment product, which can also be documented for the company’s books and allows you to get involved with mining cryptocurrencies, which is still a frontier market worth exploring
Down sides
One important feature for investors CoinDonkey’s system still misses is the possibility to re-sell MS’s, but the company seems to be developing this right now and claims it is coming up soon. For now, an investor looks at the money they originally invest as sunk, and they can only expect to get full payback after a few years at the current rates of repayment.
As a criticism not to this FinTech itself, but more to the underlying trend, is the fact a lot of the ICOs (initial coin offerings) out there raise funds for projects lacking structure. A growing number of companies are offering coins or tokens that are almost gambling-like rather than a serious project with a decent team and plan. Even though I absolutely don’t see CoinDonkey leveling with the bad ones out there, I’m sure a lot of potential clients see it as a pure speculative investment. For me, this FinTech is rather a challenger offering a new business model in the Geldanlage (investment) spectrum, though of course both market and underlying cryptocurrency mining involve a different set of risks.
What stays
So, disclosing DS’s portfolio allocation, the investment made was of 990 Euros in 1 MS, which is so far generating around 2% of income per month. There is also a small percentage bonus to reward recommendations – readers interested in investing in CoinDonkey, get in touch – and those can pile up when a recommendation gets a new client in. Generally, I’m not a big fan of anything remotely looking like a pyramid scheme. This bonus system, however, seems to offer proportional benefits to the effort you make to get a contact or friend to invest there (and the bonus diminishes once your recommended client brings someone else in), so I consider it a legitimate growth effort which they would probably remove once they reached a large enough size.
Finally, it’s worth noting that the existence of a secondary market will be a game-changer for this business, as this can allow investors to see their initial investment as a marketable asset rather than lost money. On the flip side, once investors can sell their MS’s, there will always be the risk of too many clients selling, which would then put pressure for the price to drop, so the company needs to seriously consider how they organise this market.
Also as a transparency note, one decisive factor for me to decide for CoinDonkey was a recommendation. Not only did my friend have a previous experience with this investment, but they also had significant interest in and knowledge about crypto and FinTech. They also knew both CoinDonkey enough to help me understand it, and also know the management of the company personally, which in my view creates much more accountability and makes trusting it as a legitimate business much easier.
Investment conclusion
This text explained DS Capital Management’s second FinTech investment, made in CoinDonkey, and tried to give some details around the invesment as well as the company offering it. There will be a more detailed account of how much CoinDonkey is paying in a future post, so that you can assess with numbers if this is an investment for you, even if we give the general picture here.
Finally, although I can’t claim that I’ve looked at every coin and token available in the market, from what we’ve seen so far CoinDonkey offers a solid investment for a conservative German investor who still wants to buy in the mining of cryptocurrencies. Should the company continue to develop and repay the decent returns they currently do, plus enable a secondary market, this will be an investment not many will regret. If you have any questions about CoinDonkey, cryptocurrencies or FinTech, please get in touch and I’ll be glad to take a look at it for you.