Investing in Crypto-landia
A reflection after 3 months….
I pulled out. Most of my alts at least, or what I could salvage. I thought I was getting a good sense of the crypto-market, but with all this forkage, all the rules are being re-written once again. I predict that the market will likely see some volatility with alts, and a decline and then run-up in BTC before Segwit2x in a few weeks before another see-saw with alts post-fork. Markets will be irrational for the next few weeks until the fork noise settles.
This market was making sense as long as markets were going up and down with seasonality, albeit rapidly. That was at least the case when I joined the cryptocurrency market in July 2017 after FOMO from the perpetual gains I had been reading about.
After personally hearing of 3 friends who made 6 figures (mostly from HODLing and cashing out on BTC and ETH), I thought I would put my investing and trading skills on a test run and see if I could enjoy the ride while making some money along the way.
Fast forward about 4–5 months in cryptoland (which feels like 4–5 human years), and I have been able to double my money (mostly on ICOs and swing trades) while establishing long positions on desirable alts. However, the market is changing rapidly with upcoming forks, regulation on the forefront, an evolving ICO landscape, and other TBDs. I find that it is healthy to pause momentarily, and reflect back instead of speculating forward in order to digest the past and apply learning lessons and time-tested principles for future navigation. In addition, I wonder why I don’t pull out entirely, and I am reminded by the reasons I got in the first place.
As a venture capitalist and technology enthusiast, I enjoy cryptocurrency investing for many reasons:
- the volatility is perfect for the millenial generation — there are multiple strategies to win, countless endgames, endless optionality, and money to be made while changing the world. also, i couldn’t imagine going more than 3 hours without checking my blockfolio like a crack addict. i think i have a problem, but i also think its generational so i’m okay with it.
- as someone that graduated and lived through the Great Financial Crisis of 2007–2008, it is nice to be in a proactive position to play and benefit from faster growing markets. BTC will often make in one month what the S&P500 will generate in one year.
- blockchain is not just a disruptive technology — it is a disruptive business model that democratizes profits to users that generate a system’s utility, and I believe over iterations, that decentralized capital models can help dissolve the drastic inequalities of wealth that are unfolding today. It is also redefining the social contract as we understand it today. It is hard for me to look at a regular startup today after reading about so many radical concepts through browsing hundreds of blockchain-based whitepapers.
- investing in an alt gives me skin in the game and incentivizes me to keep up on news, updates, and engage with community via reddit / telegram in a personal yet non-intrusive way. I feel connected to these companies, and often times, have had opportunities through my networks to connect with their founders.
- furthermore, tokenization when done right can incentivize utility of a system, and gameify the process in a way that pulls the user in. Successful mobile games have mastered this concept and are handsomely rewarded with profits and loyalty — if B2C companies can successfully gamify utility into their service offerings, ecosystems can thrive once generating critical mass.
- some days, i want to quit everything and do crypto full-time. i end up spending about 50% of my time on research, news, evaluation, discussions, investment, and contributions in some way shape or form today, and am hoping to increase that to a full-time gig as it is as equally consuming as it is interesting.
Obviously there is a lot of noise and hype around the space. But there will be sacrifices and iterations to make way for this new dawn of technology, just as the 2000 bubble had to endure IPO hype and thousand’s of sunk venture capital to enable the modern tech giants and digital ecosystems that we as consumers thrive and communicate socially and economically within. BTC has endured the Silk Road to attain critical mass. Blockchain companies are enduring the ICO pump and dump / scam jam to democratize capital contributions (still some work to be done here). And the community will endure a lot more noise and FUD before systems are improved, however, those strains are necessary to iterate towards progress.
The Black Swan thrives in chaos. Seeking to tame it only breeds frustration. Better to dance with it and accept its nature.
As an investor, I am learning to straddle the balance between profit pursuit (short-term trades) and long-term belief (hodl). Here’s what I’ve learned, and how I’m bracing myself for the next few months.
- Portfolio allocation rules still apply to cryptocurrency as an asset class. I’ve set aside a reasonable amount, but not more than 50% of my investment pot.
- Futhermore, within cryptos, I never allocate more than 20% to a single holding.
- I split my investments in the following tranches at ~25% each: Big 3, super-alts, swing trades, and ICOs.
- Big tre. BTC/ETH/USDT. This acts as my holding account after exiting trades. BTC as a high-interest savings account (directionally up), ETH for ICO fuel (fairly flat), and USDT (hedge volatility while holding dry powder). I don’t intend to make money here, and if I do, its to offset losses and recover transaction fees.
- Super-alts. I am generally pessimistic on most alt-coins or even neutral on most cryptocurrencies (monero, zcash, dash, xrp) as i believe currencies tend to be stable by definition for any utility. Also, the market has supported my thesis (and I think these biggies have already made their gains). Therefore, I only focus on building stakes in super-alts (top-50 alt-protocols that I have researched and believe in) when they are cheap. ZRX is cheap now ($0.20 USD as of writing), and I am building a position, among others.
- Swing-trades. I tend to trade super-alts that are maybe a bit past their temporary prime, and are floating within a 20% corridor. I buy and sell at the floor and ceiling of those corridors. Past examples include XRP 0.19–0.24, CVC 0.32–0.40, OMG 8.00–10.00 and so forth. I tend to avoid hype and coin shilling since I’ve been burned before and I genuinely don’t like trading alts whose patterns I don’t understand. Top 50 is a good cutoff for me.
- ICOs. The grand slam. I have been fortunate to get pre-sale access and have a proprietary evaluation system which has helped a group of us identify and gain access to a few strong performers like Chainlink, Kyber, Civic, and so forth. This is where I struggle philosophically — as much as I would like to take long-only positions like the super-hedge-funds in the space (Polychain, Draper, etc), I do care for liquidity, so I capitalize a portion of my gainzz for reinvestment, and let a portion ride out for long-term upside. I reinvest in new ICOs with house money, and am now at a point where I only invest in projects I am excited about and have big upside. Its easier to be in this position now, however, I can understand and relate to the urge to pump and dump off the flipper model, which I think is slowly being weaned out. I have some theories on the evolution of the ICO market, and simple valuation methods to spot-check ICO prospects, but that is fodder for my next post, as we are seeing good projects like Request, Enigma, Ripio, and many others fall flat on ICO. The game is certainly changing.
So where do I stand today? Still profitable, and cautiously optimistic. I am playing seasons (like the upcoming fork) more strategically before returning to my diversified strategy. I am participating in less ICOs, and its becoming a quality vs. quantity game, with a focus on good process and identifying the right prospects earlier through better research and standardized evaluation criteria. And of course, continuing the conversation and engagement with the community, technologists, capitalists, and other enablers of the space. In fact, part of this new blog series is to minimize the general noise and discussion on generic blockchain, and focus the conversation on targeted topics within crypto that I will focus on in future posts.