Web3: Fundamentals vs Hype
Tales of delusion across web 3.0
When Lithium first began, one of our core principles was to change the mindset of investors chasing hyper inflated returns from projects with zero fundamentals. Binance Smart Chain, in particular, was gaining a reputation for being a space in which meme coins dominated, and investors were throwing their money into unaudited projects with names like “ElonShibaBoobs” because the anonymous devs promised 100x. And every time an “ElonShibaBoobs” rugged and drained liquidity, the investors were seemingly shocked their money had dissappeared.
The redirecting of capital to legitimate projects adding value to the crypto ecosystem was an important mission of Lithiums. This wasn’t only to help facilitate the advancement of the space but to help investors stop needlessly losing money chasing the fabled 100x returns these shit coins can, on the off chance, provide. With no inherent value adding fundamentals the only element supporting the hyper inflated returns investors can experience is hype.
Investing vs Gambling
In it’s most primitive essence, investing is essentially no different to gambling. Will an asset increase or decrease in price over time? It can almost be reduced to the same 50/50 principle of a coin flip, almost. Of course, however, investing decisions are presented with more complex conditions, considerations, and variables than a simple coin flip. A plethora of external and internal factors can influence the performance of an asset, and the decisions of investors to take opposing positions on the same information.
Gambling is primarily conducted on instinct, intuition, and gut feeling. Sports gamblers may take “Bet Boosts” on matches having done little to no research because the bet boost has been marketed in a way that looks attractive, and if it comes in can provide significant returns on the initial stake.
The primary difference here is that investors will, typically, take into consideration the available information at hand to make an informed decision on the deployment of their capital to give themselves the best chance of a return in future. A gambler is more likely to take a punt based on emotive cues ignoring technical information and the vision is more short term.
The Hype Effect in Crypto
It’s no secret, at Lithium we are not fans of overhyped, baseless, high-risk shitcoins. They’re a gamble. A punt. Investors in crypto have become so use to hyper inflated returns they are disillusioned to the point that I have seen people remark things such as “APY slumped to 182% I will be moving my tokens elsewhere ASAP.” forgetting that the typical instruments they have access to in TradFi such as ISA’s may offer them a couple of percentage points at a maximum.
Charts showing steep green candles on tokens with no fundamental offering offer investors no information other than pure speculation driven buy hype. The cause for this effect is greed. Investors are becoming desensitised to this trading strategy, with a significant portion of them thinking that having their money lost when the project inevitably rugs is totally normal. It’s not.
The recent rug, Squid Game, bootstrapped the global phenomenon Netflix series. Investors saw the chart beginning to grow exponentially, with coverage from media outlets including the BBC, contributing to the buying frenzy that followed. $SQUID had absolutely nothing backing the project, other than its name was related to a series on a streaming platform. Reaching a a market cap in the billions, a roughly 31,000% increase on the listing price, $SQUID lost 100% of its value in minutes as the anonymous devs made off with tens of millions of dollars.
This high-risk strategy more often than not results in lost capital on the investors part and a multitude of anonymous blockchain developers raking in millions in stolen funds. The mindset of investors needs to change over time, to shift the narrative and focus away from “wen cmc” “wen moon” “ser 100x pls” and as the crypto space grows in maturity it inevitably will. In the meantime don’t throw your money at anonymous projects with absolutely no value proposition because your investment will more than likely go to 0.
Investment Mindset
The primary objections I hear to people investing in projects with real use case is “the chart is stagnant” “there’s no volume” “where’s the marketing” “my favourite BTEC youtuber isn’t shilling it so it must be shit”. Early investment is, by definition, high risk. You are often investing in projects that have impressive technical outlooks, problem solving potential, and comprehensive value propositions but no functional product. As an early investor, you are often staking your capital to provide the project the liquid cash it requires to act upon its roadmap and technical ambitions.
This exchange can often take place with serious durations between the project selling their token, and even the beta product being offered to investors and users.
When Swissborg was added to Coinmarketcap in 2018 it was $0.08. When Swissborg conducted their initial ICO it was $0.01, shortly after dipping down to below $0.005. The fickle crypto investor expected instant and significant gains. What Swissborg was offering investors in 2018 was an incredibly cheap price for an asset that backed the ecosystem their visionary CEO Cyrus Fazel envisaged to revolutionise aspects of the crypto economy.
Investors who bought into that vision and held made almost 150x in roughly 3 years. Investors who bought up the post ICO dump over 300x. This project had a clear whitepaper, visionary product, public facing team, and notable institutional backing.
Increasingly, in the decentralised marketplace, investors lose interest within hours sometimes minutes if a chart isn’t rocketing 10x in 30 seconds flat. If the $LINK chart existed on the likes of BSC or Polygon in todays market, how many investors would dump it for not moving up and to the right sufficiently quickly? Unfortunately the reality is quite a few. Chainlink from the outset had one of the strongest technical whitepapers of any project in 2018, yet the chart did not really get going until the back end of 2020. Again, fundamentals provided early investors roughly 500x if they were willing to hold for 3 years with 2 of those years in stagnation.
Conclusion
Explosive rises in price are sexy, after all this is crypto. Stocks are for your dad. Why spend your days reading the FT and golfing with wheezing, medium — well done finance bros, when $SHIB could get you a new house? Hype for projects with no fundamentals is unstable, it’s a random event, and more often than not, the “team” behind it have ulterior motives to ensure they’re buying the new house not you. Backing legitimate projects with less initial hype, low volume, and no product is not sexy, at least in the beginning. However, being able to cash your 300x in 3 years time is, and it’s probably worth the wait.
