Buy the wheat, not the chaff — how to profit from the next crypto cycle
The five most dangerous words in investing are: “this time it is different”. It never is. Crypto is just another market — it is more volatile, it moves faster, but ultimately it behaves like every market since the beginning of trading. As we approach the start of the next cycle, it’s worth looking at the historical parallels.
Crypto made many people rich almost overnight, just to lose most of it a few months later. People who bought in at the top feel being cheated.
It’s nothing new: the last time this happened was in 1999. Investors made unfathomable profits back then, and a precious few became millionaires for life. Most of them, though, left the floor with empty pockets. The challenge of 2018 in a nutshell: how to make sure you are part of the former group when it comes to crypto.
In hindsight, it’s easy to laugh at investors putting millions of dollars into companies like pets.com — a business clearly lacking a viable business model and making a loss on every single sale.
Yet, most people buy into crypto projects without doing any due diligence.
Crypto was apparently in a bubble at the end of last year, and many people lost 70–90% of their capital. Some might even argue the capitulation has not happened yet. My personal opinion is that we are getting close to the bottom, evidenced by the mushrooming of conspiracy theories. People starting to blame the “Cartel”, the “banks”, Soros (or whoever the scapegoat of the week is) for their own bad decisions is often a clear signal of a reversal.
The truth is, it doesn’t matter much in the long-term if Bitcoin bottoms at $6000 or $3000 or even at $1800. What does matter is what happens when the next market cycle starts.
Cycles separate the wheat from the chaff. It is a widely held view among crypto veterans that 90% of the altcoins will go to zero on the long term, and most people because of negligence, a lack of information or blind stupidity will be caught swimming naked, holding coins equivalent to 1999’s pets.com shares. Your goal should be finding the 10%. If you hodl the Amazon and Adobe stocks of crypto through 2018, you’ll never have to worry again about your financials ever.
The time to buy is now. The million dollar question (quite literally) is what to buy.
Projects with a real-world use case
The majority (!) of the crypto projects are solutions in search of a problem. Even worse, many of them decidedly don’t have a use case, like most of the masternode coins. It sounds good to make 500% ROI by merely holding a coin, but good luck cashing out. Those days are over.
The next cycle will favor projects solving real-world problems efficiently. Identity management, logistics and supply chain management, anti-counterfeiting, ownership records, you name it — blockchain technology has the potential to revolutionize a dozen industries. What we possibly don’t need is yet another payment solution or yet another fork coin.
A working product
In 2017 we’ve seen insane market valuations for projects with barely working tech like Cardano and IOTA. As the most visible sign of a bubble, dozens of ICOs raised millions of dollars without showing a single line of code.
Markets are often happy to finance companies who are “not there yet.” Amazon was losing money for many years, raising funds to build up scale. Tesla, easily the most fascinating company of 2018, has its financials in shambles. Yet, Tesla does have a working product. You can buy it, you can drive it and crash it. When you buy crypto assets like ADA (Cardano) or TRON you are buying stocks in a car company which has nothing but a brochure about a car they might build one day. Look for projects with a working product instead.
Partners, partners and partners
Even if you solve real-world problems with great tech, you can’t be successful without partnering the critical players in your industry. As much as I sympathize with the anarchic utopia of crypto, established players won’t go away; on the contrary, partnering with the incumbents is the only way to mainstream adoption. VeChain is one of the precious few assets emerging from the Q1 carnage relatively unscathed, after partnering with the biggest names in the supply chain logistics industry. It will continue doing exceptionally well. Another good example is Ripple. It might be universally hated among traders (for a reason), but few projects have better partnerships than XRP.
There are exceptions to this rule, but they are few and far between. Bitcoin is the most obvious one: as they say “Bitcoin doesn’t need partners, partners need Bitcoin.” I find this highly debatable, and I am not particularly bullish on Bitcoin compared to a dozen other projects, but Bitcoin is the de-facto gold standard of crypto today, and will remain the top dog for the foreseeable future. Privacy coins don’t necessarily need partners either. Monero, Zcash, Zcoin, Sumokoin, etc shall do well without securing a partner (although we probably don’t need a dozen privacy coins on the long-term).
A superstar team
Venture capitalists know how important the team is to the success of a project. It works the same in crypto. In fact, the easiest way to spot a scam ICO is checking the team CVs. If you believe someone who never held a job before can become a successful CEO of a “crypto bank”, helped by advisors who are SEO consultants and graphic designers, you should consider buying government bonds instead of crypto assets.
Make sure the project you invest in has capable people on the team who are well-connected, who can credibly approach partners and who can deliver.
A few of my personal favorites checking all the boxes are Rock Token, SophiaTX, QASH, VeChain and a dozen others. I’ll publish detailed analyses on each of them in the coming weeks. Make sure you hit that Follow button!
I am not a financial advisor. My articles reflect my own personal views. Do your own research and invest wisely.
