With new money entering the crypto space this year, I figured it would be helpful to put together a brief guide to help new money find the correct project(s) to invest in. Yes, there are many different ways to valuate a project so please be sure to DYOR and find what works best for you.
I generally classify investors into two groups:
- Traders — Short term positions — People who focus on momentum/hype, chart reading, and near term catalysts. In my opinion, this group spends more time keeping up to date with the space to maximize gains based on short term events. High level, I visualize this group as sprinters.
- HODLers — Long term positions — People who focus on product fundamentals, vision, and big picture goals. In my opinion, this groups spends more time up front understanding the market to see where a coins potential future value will be. This doesn’t require as much day to day up-keep but one would also need to adjust valuations based on new projects/ideas. High level, I visualize this group as marathoners.
In this article, I will highlight what is needed to be proficient in group #2. One way isnt better than the other and often investors utilize a mixture of both. Please note, the definition of long and short term are slightly different than in traditional stock markets given the speed the environment changes. Unlike the stock market which is mainly earnings driven, crypto in these early stages, moves almost purely on speculation. Bottom line, you need to find what works best for you since everyones situation is different and like any other investment, everyone underwrites in their own personal way.
Here are 3 bullet points to help you get started in becoming a crypto HODLER:
- The Environment
- Market Cycles
- Project Focus
Today, the market cap of crypto is $1.8B USD with Bitcoin and Ethereum dominating 72% of the the mark. The best place to understand the crypto environment is via www.coinmarketcap.com to see a list of everything crypto related. I utilize this website to understand current valuations in comparison to other projects with a similar focus. When looking at the crypto environment, you will quickly see that this space is very volatile, which I believe is due to it being in it’s early stages.
On the topic of The Environment, you will be able to go back in time on CMC (coinmarketcap) to see what projects led the market during each year. You can find this by following these steps:
- Visit www.coinmarketcap.com
- Hover over the Cryptocurrencies tab
- Click the sub tab Historical Snapshot
This is useful as it will show that strong projects today aren’t always going to be strong projects tomorrow.
The earliest date we can see data for is April 28th, 2013.
Looking at this data from about 8 years ago, there were only 7 coins on the market in which two have maintained a top spot in today’s markets — BTC and LTC. As we fast forward to April 30th, 2017, we can see that much has changed within the crypto environment. Not only are there new faces in the space, but there are well over 200 projects being traded across the blockchain market.
Comparing the two, Bitcoin is still #1 but we see what was at the time considered new projects taking bigger roles in crypto. Litecoin was bumped down into #4 being replaced by Ethereum and XRP. We can then fast forward to today where we have almost 9K projects and counting.
Similar to the first comparison, Bitcoin is still number 1 and Ethereum has still held number 2 but Litecoin has moved into the 9th spot. There are also a lot of new faces that appeared within the last 4 years.
What this shows is that the market is always changing and as there are new technological advances in blockchain, new projects take the top spots.
Since crypto is in its early stages, developers are continually pushing the space to new levels. I want to highlight this topic first because I know many people fall in love with a project because of short term price action but in my opinion, what you really need to look for is longevity. Even though Litecoin slightly fell down the rankings, it went from $75M to $14B by staying alive and relevant.
This clearly shows that strong project today might not always be a strong project tomorrow, unless of course your name is Bitcoin which has shown to have dominated essentially since the inception of crypto.
In comparing the 3 snippets, we can also see that the space has grown exponentially over the last 8 years. Bitcoin market cap went from $1.5B in the 2013 snippet to 1.1T in todays snippet, March 2021.
How do I utilize this information? Naturally the market will grow and your investment will rise with the seas assuming it can endure the fast changing environment and stay relevant. Relevant meaning that the project maintains a use-case, in simplicity, I find this by looking at transaction volume compared to competing projects.
If there is one point I get across in this article, it’s you need to understand the market cycles. Crypto waves are bigger than any other market but that is naturally followed by a very large crash. Looking at recent data, the last ALTSZN was in 2017/2018. If timed correctly, one could have 10–100X there money in a period of 30 days.
Please note that I’ve only experienced one altszn/bull year so I’m basing this section off my experiences in 2017/2018 where I personally hit a few 10x’s, hence the name. When I look at market cycles, a bull year consists of a decent run in the first half of the year, followed by a retrace in Q3, ending in fireworks in Q4. What causes an ALTSZN? Since Bitcoin dominates the majority of the market, we’re looking for money to move out of Bitcoin into the other parts of the market, Alt coins (alternative to Bitcoin). In 2017, the Bitcoin dominance quickly dropped from 60% to 40% causing altcoins to rocket. Although this isnt the only indicator, I use this to determine where we are in a cycle. If Bitcoin dominance falls rapidly, it would be an indicator for me the cycle is closer to an end. Shortly after this happened, the crypto space quickly fell from $800B at the top in December 2017 to about $100B a year later in December 2018. Bottom line, be careful and watch for indicators showing the “party” is coming to an end.
As some may not know, crypto today isn’t just a peer to peer payment system like Bitcoin and a lot of the original coins created in 2013. With about 9,000 projects today, there are sectors within crypto similar to traditional stocks. I’m a strong believer of in life, it doesn’t matter what you do but how you do it; you just need to be the best at what you do to be successful. I analyze the crypto space (and stocks) similar where I want to be apart of what I think is the best project in each sector.
Currently, we have a few topics that are the craze in today’s market which can also be seen in the subtabs of Coinmarketcap. These are DEFI, NFTS, and in my opinion interoperability.
Why is interoperability so important? A technology like blockchain should not be limited between chains but have the ability to communicate across all networks. With the high Ethereum gas prices, this has shined a spotlight on the topic. I see interoperability as a the internet component to a computer. You can read more about this in my past articles.
As noted in previous topics, the space is quickly changing so what is “hot” right now might not be in a few years.
DEFI is the next move into decentralized finance where investors are both the lenders and borrowers.
NFTs stands for non-fungible tokens, essentially a digital item linked to the blockchain.
When I look at top projects, I want to see what they do. Within the top 10, not including stable coins and Bitcoin, the majority of these projects are platform coins. A platform coin is a project that runs on it’s own blockchain in which sub projects can build off of. To start your research, here are a few ecosystems that are worth taking a look at — ETH, BNB, DOT, ATOM, TRX. You will notice that within crypto, there are sub environments within each ecosystem. In my opinion, platform projects will naturally float to the top of the leaderboard given their overall value add to the space as they are the essentially foundation.
The goal of this article is to share a high level overview on the main variables to consider in crypto investing. The overall crypto environment, market cycles, and project focus. I understand there is a lot of information to tackle but my approach is to always start at a macro level before the micro. I hope this is helpful for any new comers to the crypto space.
Please feel free to share feedback or any other important topics to review/analyze prior to investing into blockchain.
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We hold a position in $ICX