Like all financial products Bitcoin Enhanced tokens carry risks.
However they do NOT include the risk of the financial system collapsing.
It is the different nature of these risks that enables diversification.
BE risks include:
Liquidity – there may be not enough buyers for the tokens on the Waves exchange leading to their price to fall.
The Bitcoin long/short strategy does not perform or Bitcoin prices fall, both of which would lower the Target Price.
Regulations change so people can no longer buy and sell the tokens.
Please be aware:
Bitcoin Enhanced tokens are not associated with Bitcoin and are not a fork of Bitcoin.
We do not buy and sell Bitcoin or Bitcoin Futures to generate our Target Price.
The Target Price may not be the price people buy and sell the tokens at on the Waves exchange.
The actual price, like the price of other markets such as equities, currencies and commodities is solely determined by buyers and sellers trading on the exchange.
If there are no buyers the value of your tokens could fall to zero.
Liquidity is the presence of buyers in a market. ALL markets are susceptible to liquidity squeezes.
The size of a market is NOT a guarantee of liquidity e.g. over the weekend of March 13-16 2008 the share price of NYSE listed Bear Stearns fell 89%.
XBE and CBE tokens can expect periods when there is a shortage of buyers and you may have to wait to sell your tokens.
The limit on issuing more tokens until the traded price is greater than or equal to the Target Price, as well as the hard cap of 4 million of each token, are the quantitative mechanisms in place to help restore any loss of liquidity.
As products that enable diversification away from the risks of the financial system periods low liquidity are unlikely to be AT THE SAME TIME as a liquidity squeeze in the financial system.
This difference in timing is another way XBE and CBE enable genuine portfolio diversification.