It’s 2021 and CRYPTO IS BACK!
If you are reading this then you have successfully navigated your way through what was the most chaotic year in living memory. From racially motivated murders carried out by law enforcement to a farcical Presidential Election that will go down in history for all the wrong reasons, 2020 was never short of headline news. Though, extremely impactful in their own right, these events played out as mere sub-plots in a much larger horror story that continues to unfold, Covid-19.
The global pandemic has not only forced us to rethink how we interact with our physical world, but it has blown a hole in the economy so large that the already failing FIAT system, now more than ever, needs to be replaced.
Cometh the hour, cometh the. . .Bitcoin?
Despite its grave impact on many, 2020 doesn't need to cripple us. Societies around the globe have already shown how quickly they can adapt to traumatic change, as they overcome the most trying circumstances. Somehow, after death and destruction, the world's population now feels a little more connected. This beacon of hope for humanity is one of very few lighting the way forward, another. . . is Bitcoin.
For those unfamiliar with cryptocurrency, it may seem strange that a bull market could come off the back of an economic disaster greater than anything experienced in modern history, but it won’t be news to you that in 2020 FIAT currencies were debased at a rate not even seen during WW2. With every dollar, pound or euro printed out of thin air in the name of “stimulus”, the peoples purchasing power decreased.
This unwanted reality has forced high net-worth individuals to flee for safety in hard assets. Silicon Valleys longest-serving CEO, Michael Saylor, who also founded the NASDAQ listed Microstrategy, was equally brave as he was contrarian in presenting to his boardroom the bold idea to trade more than $500m of the companies cash assets for Bitcoin.
It was a masterclass in progressive leadership that aimed to secure his companies longterm purchasing power as the feds money printer went into overdrive.
The move made headlines but more importantly, it repositioned Bitcoin in the minds of conventional investors. Almost like someone turning the light on in a darkened room, older and more conservative money was now seeing Bitcoin as a haven hedge against the dollar. No longer a shot in the dark.
If extreme monetary stimulus acted as the spark that lit the tinder under this bullrun, then Microstrategy’s total commitment of $1.2bn (70k Bitcoin), has added fuel to the fire. Since then, institutional money has been flowing into the market in previously inconceivable numbers.
The $1.2bn in Bitcoin is now valued at $2.6bn, not bad Michael sir.
“This time will be different.” -Some common questions
Will 2021 shape up to become another 2017 style boom for cryptocurrencies?
As already discussed, the macro-environment is painting the Mona Lisa of backdrops, civil unrest, failing governments and an antiquated financial system crying out for change. If 2021 doesn't dwarf the bubble of 2017, I will be shocked.
“Do you think it’s too late to buy?”
Some twenty-four months into the last bull market, this was one question I found very difficult to answer and yet it should have been the easiest. Emotions cloud judgement and during the climactic mania phase of a long market cycle, it is very easy to lose all rationale. The intense emotions felt by many at that time should have been an obvious indicator of “the top”, but as the saying goes. . . hindsight is a wonderful thing.
“I could have _____ if I had just ____!”
Many of you reading this, who experienced the euphoria of late 2017 will have heard this statement made, and most will be able to fill in the blanks to describe their own individual regrets.
Personally, I had managed to exit the market with around 14x my initial investment, and although I knew this was a great return it wasn't enough to prevent me feeling like I had f**ked up a once in a lifetime opportunity. There was no Lambo, it was always just “one more pump away”.
“I could have been a multi-millionaire if I had stuck to the plan!”
Three years later, after lot’s of study, reflection and an unforgiving bear market, I find myself filled with knowledge infused clarity and armed with a proven plan.
Today, if posed with the question “Am I too late?”, the answer is easy. . .
We are early, so find a winning strategy and stick to it.
I heard that Bitcoin is the real deal and the rest are “shitcoins”!
With Bitcoin hitting new ATH’s it is obvious there is a tidal wave of fresh hope ready to wash over the current woes of our financial system, and when the foamy surf settles, we will see a new shoreline crowded with innovative real-world solutions. Unlike 2017, the success will not be fueled by hype alone, it’s now or never for adoption, choose your investments wisely.
Satoshi’s White Paper was the big bang that gave birth to a new financial universe, and though “maximalists” will have you believe Bitcoin is a black hole that swallows everything eventually, it is much more likely Bitcoin is simply the first and largest star in this universe, and all else that exists depends upon it burning brightly.
Star Gazing in the Crypto-verse
How do you decide which coins to buy?
There are literally thousands of projects, with new ones popping up every other day. Having had three years of bear market silence in social arena’s, many teams have been preparing for this moment. A noticeable improvement in the space is the focus on branding, product design and marketing.
CEO’s and investors will have miscalculated if they naively assume the “best tech” converts to the most success. The value gained by spending on identity aesthetics should not be underestimated. Those who execute well on thoughtful marketing strategies will reap the rewards as retail investors enter.
For Founder’s considering a brand strategy, understanding the investor base is vital.
For founders; understanding the market must be equal to understanding the tech
For investors; understanding the market > understanding the tech
This is a new market still in its infancy, I have a pair of socks that have been around longer than the crypto market, and my favourite Levi-jeans are older than some of the “investors”. . . I’m 35.
The vast majority of investors in this space are under-educated on the tech side, myself included. This isn’t a problem, it is an expected characteristic of novel markets.
Teams who acknowledge this fact and avoid wasting valuable resources in attempting to educate the public on the many technical complexities of decentralised, blockchain protocols, will find a much more successful approach in educating the masses on what success looks like for these systems.
When foreign explorers first entered the pyramid’s, they didn’t need to decipher hieroglyphs to grasp the enormity of their discovery.
I feel that many in the space (when it comes to price appreciation) overestimate the importance of technical superiorities and underestimate the importance of good storytelling.
Find projects that focus more on helping investors understand the problem they aim to solve, rather than those focusing heavily on technical details and superiority.
My point here is not to undermine the criticality of well-built software protocols. I simply try to place myself in the shoes of the majority because it is the majority who drive price, therefore as an investor and not a software engineer, I seek to find projects who understand how to engage the less tech-savvy.
This ability (to offer clarity) is a competitive differentiator in a confusing environment and will provide more value to my investment than proclamations of “100k tps and cryptographic timestamps that verify the water content in a baked potato”.
If we agree that human psychology is what drives markets then let us consider two of the key psychological impacts on investor buying behaviour when the majority are not experts in the relevant field; authority and social proof.
Marketing persuasion principles work best in the absence of understanding, lazy investors will defer to those deemed an expert in the field, known as “Authority Persuasion”.
Adding to that is the fact people pay attention to what other people are doing, both consciously and unconsciously. Also referred to as “Social Proof”, individuals will choose the crowded restaurant over the empty one even though it will take longer to get served and they have no idea how good the food is. Those who witnessed the ICO “whitelist” stampedes of 2017 will understand this well.
Let's look at Polkadot as an example, boasting the talents of Ethereum co-founder Gavin Wood, Peter Czaban, the Technology Director of the Web3 Foundation, and Robert Habermeier, a Thiel Fellow who’s received funding to pursue scientific research into blockchains and cryptography. This all-star team was going to generate excitement even before a line of code had been written.
Amateur investors are looking for evidence that you can make them rich, if you are the “co-founder” of Ethereum, a project valued at more than $100bn, then you automatically acquire a prospective investors trust, when you place that title next to your name on the company website; trust translates to investment.
Add amazing storytelling to this picture and you have a brand that can easily outperform the value of a similar project that offers superior-tech but weak brand identity. The gap between the two competing projects should converge over the longer timeframes because poor tech will be harder to change than poor aesthetics.
You will see this kind of persuasion tactic used in all start-ups, it makes sense and is understandable that people will leverage their past success to further their current and future opportunities, we all do this.
I give huge praise to the brand strategy team at Polkadot, they have appealed to investors by leveraging the powers of persuasion most impressively, their eye for design is the best in this market and many project teams could really benefit from taking brand identity as seriously as the team at DOT.
DOT’s spot at #4 on coinmarketcap is even more incredible because it is in spite of suffering huge losses when a bug in Parity code (Polkadot creators) permanently froze $500m (current value) worth of user funds not long after they held their ICO on the Ethereum platform. Luckily they were extremely well financially backed. Some of the other projects who suffered losses were never able to recover.
I believe the authority offered by a project team gives me a simple and reliable indicator as to how many onlookers that project is likely to convert into investors. It can also help me evaluate the risk potential of failure to achieve the promises made.
If the team tick boxes such as high-level experience, longevity in their field, and publically available credentials in the form of Github commits, patents, IP rights etc then it should be worth your time to do further research.
People build success so find hard-working, verifiable, talented individuals before you do anything else.
“Thanks for pointing out the obvious, now how do I find undervalued gems?”
NEO (formerly Antshares) — open-source smart contract platform founded in 2014 by Da HongFei and Erik Zhang. Tagged by the Reddit crypto community as “the Chinese Ethereum”.
Advantage= Authority HongFei and Erik Zhang were ambitious and respected, Zhang created the dBFT protocol that many blockchain projects use today. The credentials were visible and the idea was a big one, both clear advantages for those willing to do the research.
Disadvantages*; Antshares name+logo considered smalltime and amateurish.
(*tip- the word disadvantage refers to a disadvantage for the project but for a savvy investor, it is the veil that hides the true value and should be considered an advantage)
Da HongFei listened to his community of longterm supporters, those who seen the value of the tech but agreed there needed to be a facelift. In June 2017 the team led a month-long rebranding process, engaging the community by creating a web design competition, the best design would become the new website for NEO Smart Economy.
The results were immediate, $5 to $180 in a 6-month run. Of course, this cant all be attributed to the rebrand, there were multiple altcoin cycles in that period and as stated the technology was credible. However, it was considered by all who held at that time to be the major turning point for the project.
The secret sauce was what the masses couldn’t see. Investors who saw the credentials of the team at Antshares; proven and credible experts in their field and understood that branding was a superficial and easy fixed flaw were buying undervalued “ANS” between its ICO price of $0.03c and $2.
In doing so they experienced huge growth- 600,000%+ for the earliest supporters
What is the secret sauce?
Look out for projects who have credible experts within their ranks but are perhaps failing on the art of branding.
Project success is a reflection of the talent a project has amongst its ranks, so if a project already has the most valuable asset (talented people) then branding can ALWAYS be improved upon and is a minor. That minor may cause the price to be undervalued and as a “value investor”, undervalued is exactly what I’m after.
This leads me to my thoughts on social proof, understanding that people will buy whatever other people are buying can be a huge help but to leverage this understanding an investor should front-run the crowd. Find projects that tick the right boxes BEFORE the crowd does. If you can achieve this then you capitalise on the consequences of these market behaviours.
Think of it like taking a long scenic train journey, being an early passenger has given you early-bird discount in the 1st class carriage, you can relax and enjoy the views along the way, meanwhile, the cattle class carriages are getting more and more crowded as passengers hop on at every stop. Having heard about this breathtaking journey through a local marketing campaign, they are presented with the misery of having to stand, they can’t enjoy the views and paid a premium for their ticket.
How do I know I am early?
Many budding entrepreneurs with big ideas are trying to pin the proverbial tail on the donkey, where the “donkey” is adoption and the “tail” is a use-case. This gives the novice investor a selection headache, too much choice can be as big a problem as not enough choice.
Avoid noise. If you think scrolling Reddit, Twitter or Facebook for tips is good due-diligence then the likelihood is you will be standing throughout this train journey.
Carrying out thorough due diligence enables you to make better judgements when it comes to valuation.
Understanding valuation is the best way to judge how early or late you may be on the journey of a particular project. Look to the science of networks in efforts to better evaluate them.
Let’s use network science to answer some common questions-
Which blockchain usecase will create the most value for investors?
The inherent value of a “platform blockchain”
Many new investors in cryptocurrency get confused with what success looks like for blockchains because they apply stock market fundamental analysis tools such as Price/Earnings ratios for valuing companies/securities. In thinking this way I often read questions like;
“Where is KardiaChain going to bring revenue from?”
This approach invites confusion and fails to offer value perspective. Blockchains are not cash cow businesses like those who rely on the selling of a service or product to succeed, they are networks, networks grow in value via the number of users/nodes it has.
So instead of looking toward revenue streams, look toward network growth and user acquisition.
Watch this video and figure out how many of these effects are being hit upon by a prospective investment, broader utility leads to larger network effects;
The inherent value of networks- Metcalfe's Law
Metcalfe’s Law states that a network’s value is proportional to the square of the number of nodes in the network. The end nodes can be computers, servers and simply users. For example, if a network has 10 nodes, its inherent value is 100 (10×10=100). Add one more node, and the value is 121. Add another and the value jumps to 144. Non-linear, exponential, growth.
Watch this video explanation for better understanding-
As an investor who simply wishes to distinguish between undervalued and overvalued, Metcalfe’s law is one of the most reliable and valuable tools I have access to.
In thinking this way I find myself on the same train of thought as one of the world’s best macro investors, let’s look at some of the evidence Raoul Pal recently provided for his take on Metcalfe’s Law in crypto-
Although there are multiple publications that testify to the merit of using Metcalfe’s law to evaluate the potential of a blockchain. It can’t be used in isolation to give a price prediction but it can be used to offer a basic understanding of growth potential.
I have spent a lot of time evaluating the network potential of a small-cap platform blockchain named KardiaChain. I have written articles about its fundamental advantages. Tomorrow, I will provide the network science behind my strong belief that it is likely to become this year’s stand-out performer and experience growth similar to what I predicted in for Antshares/NEO back in early 2017.
This research includes a data-rich spreadsheet that uses multiple quantitative valuation formulae to demonstrate how undervalued the network is based on known predicted data points of current known use case information.
I have been a consistent and vocal supporter of KardiaChain not because I am some paid “shill” like 95% of “content” producers in the space, but because I wish to share my findings and educate those investors who are currently deafened by the noise.
Here is a very basic example of Metcalfe's law used alongside Network Value data points. The illustration of DOT and KardiaChain are NOT official data metrics, they are simple projections of future transactional throughput, I have entered low estimations for KAI as to not be considered as attempting to generate false hope.
In Part 2-
I will provide a much broader spreadsheet with hundreds of quantitative predictions built-in. I will also elaborate more on why Polkadots success is bullish for KardiaChain and how the two will co-exist as facilitators of interoperability on the fabric of “Internet 3.0”, the Internet of Value.
Thank you for reading Part 1, I hope I have helped provide some detail of my own personal strategy for success.