Here’s my cryptocurrency investment approach. P.S. — I’m a n00b.

Back in college I took an intro to Cryptography class. We dove into classical cryptosystems, public-key encryption, pseudo-random sequences, and zero-knowledge protocols. The class primarily centered around mathematical theory and I remember thinking, “I’ll never need to know this stuff.”

Boy was I wrong.

Here we are 10 years later and applied cryptography and blockchain fueled “trust protocols” are rapidly changing how we store and transfer value.

Over the last 60 days I’ve immersed myself in the cryptocurrency space. I read everything I can get my hands on, listen to podcasts, watch videos, join online discussions, etc.

A few weeks ago I began making small investments with one simple goal: learn by doing. From my brief time in the space, here’s my current cryptocurrency investment approach:

Play it long — If I’m placing a bet on a cryptocurrency, I’m doing so with the intent to hodl [1]. Yes, cryptocurrency is nice because of its liquidity, but I see investing in crypto as an opportunity to support developers. It’s something I’m passionate about (see: Hack Upstate). Building complex protocols and distributed applications (DApps) takes time and I want to support them long-term. With that said, I won’t hesitate to liquidate a percentage of gains here and there along the way.

Rebalance portfolio every 90 days — I anticipate rebalancing my portfolio every 90 days or so given the space changes rapidly. The collective crypto market cap is still (relatively) modest, so volatility is a real concern. Being agile is an effective risk mitigation strategy. I also plan to anchor the majority of my investments in the big three for the time being (i.e., $BTC, $ETH, $LTC).

Find novel incentive and consensus systems — For protocols and their tokens to thrive they must effectively govern the production, distribution, and consumption of goods and services for a growing decentralized economy. When evaluating tokens outside the big three and researching upcoming ICOs, I focus primarily on how novel their incentive and consensus systems are. I ask myself, “Are they using decentralization in a unique and meaningful way that will enable new behavior?”

Focus on developer tools and infrastructure — The cryptocurrency world and decentralized applications are still in their infancy. Some suggest this is very similar to ’93-’94 when the Internet was beginning to gain momentum among early adopters. Consequently, we’re still a little ways away from seeing massively adopted, user facing applications. We’re instead knee deep in protocol and infrastructure development — the tools that will ultimately facilitate the development of massively adopted, user facing applications. Therefore, I’m primarily interested in protocols and tokens that enable developers by taking advantage of the unique opportunities decentralization creates for them (e.g., supercomputing, decentralized storage, decentralized application design and development, etc.)

Bet on people — Similar to seed investing, the people behind the development and management of these entities are the most important consideration to take into account. You’re betting on a team more than anything else. To that end, I’ll read their white papers, research their online presences, look at their code / evaluate the cadence of their commits, and if possible, join their Discord channels and ask them questions.

My brief exposure to blockchain and cryptocurrencies has been incredibly rewarding. It’s nearly impossible to know where we’re headed, but a tectonic shift is already in progress that will fundamentally disrupt institutions that provide centralized “trust services” (e.g., finance, government, legal, insurance, real estate, etc.)

As I further develop my investment approach, I feel there is a unique opportunity for those with:

1. The technical skills necessary to build and iterate upon tools that curate market data and proactively identify signals.
2. The financial skills necessary to effectively interpret market trends and indicators, and the ability to clearly articulate strategies and tactics to investors.
3. A thorough understanding of how early stage startups operate, and the characteristics associated with successful founding teams.
4. The ability to successfully market and raise investment capital, and apply leverage to cryptocurrencies with modest market caps.

Interested in discussing further? I’d love to connect: doug@upstate.agency

I’d also strongly encourage you to checkout the cryptomarkets Discord channel for trading signals, analysis, and the latest news. They even built their own Fantasy Crypto Trading bot!

[1] What’s The Backstory On The Word, HODL?