Learn Crypto investing in 5 min

Hi 👋 welcome to my Blog! Over the next 5 minutes i walk you through a crypto investment framework which you might find interesting and helpful. This is a framework i built for myself and its NFA.

Before we get started, I like to address a common question i keep running into when i meet brave souls like yourself who want to get started in crypto.

Why crypto ? Whats special about it ? Isn’t it a bubble ?

Well it might be a bubble or maybe not. Lets leave it to fortune tellers for now. But one thing is true, it is filled with brave entrepreneurs and innovators who built a 2 trillion market from scratch where you can make decisions on how money is spent. Most importantly it has all key ingredients (talent, capital and timing) required to win.

Now, lets dive into the 4 step investment framework that guides you from sourcing ideas to investing.

1. Pre- Analysis
2. Market research & Problem findings
3. Startup hunting & research
4. Investing, measuring and improving

1. Pre-Analysis

In here, you need to decide the amount you want to invest and where to bet it. But, before deciding you also need to look back to see whats the average return and loss for crypto projects in short, medium and long term by visiting coinmarketcap.com or coingecko.com. Lets say you find out that

Short term crypto projects or coins launched in the past 6 months to 1 year have a return of 30% while they lost 70% value .

Mid term crypto projects or coins launched in the past 1 to 2 years have a return of 60% while they lost 40% value .

Long term crypto projects or coins launched in the past 2 to 4 years have a return of 40% while they lost 80% value.

You can now decide where to place your bets using data you gathered. Next, you need to decide how much money to invest into each bucket while reducing your losses. For this, you can use Kelly criterion or formula from microeconomics. Lets apply the formula for a investment amount of $10,000 with above return and loss percentage.

Short term (30% return and loss is at 70%) : Max investment amount might fall in the range of $2000 to $3000 based on odds of loosing.

Mid term (60% return and loss is at 40%) : Max investment amount might fall in the range of $4000 to $6000 based on odds of loosing.

Long term (40% return and loss is at 80%) : Max investment amount might fall in the range of $1500 to $2000 based on odds of loosing.

Using above information you can invest into the right bucket while reducing your losses as crypto markets are volatile.

2. Market research & Problem findings

In here, you need to spend time looking for emerging ideas and/or problems which when built or solved benefits entire crypto community(Example- A creator tool to build NFT in less than 5 minutes or collaboration tools to improve DAO activities or A google flights kind of interface to connect various blockchains). Below are few ways to help you get started.

Find emerging ideas by reading new proposals on various websites like below.

• EIP (Ethereum Improvement Proposals) provides information on whats coming soon. As an example EIP-721 is for NFTs
• BIPs (Bitcoin Improvement Proposal)
• White papers & Messari reports
• VC investment trends and blogs(Follow a16z, Multicoin Capitaland Polychain Capital )
• Artists and Discord communities launching NFTs

Look out for changing market conditions and/or people interests like below- while drawing parallel to similar things (Co-op banks to DAOs)

• Changes in regulatory system (ETF, Changing rules and regulations, Inflation, Crypto securities, Stablecoins, Clean energy, Crypto dollar)
• Web 3 evolution (NFT Infra, DAOs tooling, Bridges, DeFi, L1 & L2, DIDs, Storage, Metaverse, Gaming, Domains, Hardware like Helium, Oracles). NFTs can be further broken down in PFP, Digital art, Fan tokens, Non-Fungible Credentials. DAOs can be broken into collaboration tools, mini DAOs or Learn-to-earn , treasury diversification, Audit tools, Legal DAOs, Venture DAOs and Curation DAOs for crowdsources information or news. DeFi include algorithmic and usd backed stablecoins, Lending, Borrowing, Yield farming, New indexes similar to credit scores, Reserve unlocking and CeDefi apps.
• New ways to offset organizations costs by using Web3 tech (Decentralized Identify management or reputation management)
• Network effects (BNB token incentives for using Binance exchange)
• Risk management infrastructure
• DEX and CEX for new coins based on trading volumes and hold scores.

Scout for problem in below locations

• Crypto Twitter
• Discord & Telegram channels
• Problem you ran into when using crypto products
• Top 10 revenue generating smart contracts on blockchains (Ex- Axie, OpenSea and Uniswap on Ethereum)
• Defi treasures and their Discord channels(AAVE, Compound, Uniswap)

3. Startup hunting and research

In here, you need to spend time looking for startups, decentralized teams or DAOs solving above problems in below places

• Twitter
• Discord channels
• AngelList or through know contacts
• Cointelegraph.com
• Blogs and/or Podcasts
• VC blogs (Follow a16Z, Multicoin and Polychain Capital )

When you find a company — deep dive into below areas

• How innovative the idea is ?
• Founders or team background and experience
• Advisors and backers
• Game theory elements (Invite-only, Meritocratic groups, Lockups, Reward emissions, Play-to-earn model reducing customer acquisition costs)
• Code quality & Audits
• Twitter sentiment
• How easy it is to copy/paste code onto other L1 & L2 blockchains
• Writing skills (Very important to influence community)
• Roadmap and delivery of features
• Tokenomics
• Capital flows from blue chips to this new token
• Social sentiment and user onboarding (Can the idea sell itself?)

If all the above areas look great you may move ahead into investing

4. Investing, measuring and improving

In this last step, you need to find the best way to invest by reaching out to founders or syndicate leads(AngelList) or participating in token launch or dutch auctions or sending USDC/USDT/BTC/ETH funds by signing few days.

Post investing, you need to keep reading updates from the team to track progress while measuring the success of your investment and finding areas of improvement in case it doesn't work.

Apart from investing, you can also help crypto startups by sharing your knowledge in both technical and non-technical ways

Lastly, checkout my other interesting blogs on how to be a better story teller in 10 min or how to create a online marketplace if you are interested.