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Here is how to play the altcoin game - for newbies & champs
I have been here for many previous altcoin seasons (2013,2017 etc) and wanted to share knowedle. It's a LOOONG article. The evaluation of altcoins (i.e not Bitcoin) is one of the most difficult and profitable exercises. Here I will outline my methodology and thinking but we have to take some things as a given. The first is that the whole market is going up or down with forces that we can't predict or control. Bitcoin is correlated with economic environments, money supply increases, safe havens such as Gold, hype and country regulations. This is an impossible mix to analyze and almost everyone fails at it. That's why you see people valuing Bitcoin from $100 to $500k frequently. Although I am bullish on the prospects of Bitcoin and decentralization and smart contract platforms, this is not the game I will be describing. I am talking about a game where you try to maximize your BTC holdings by investing in altcoins. We win this game even if we are at a loss in fiat currency value. To put it another way:
If you are not bullish in general on cryptocurrencies you have no place in investing or trading cryptocurrencies since it's always a losing proposition to trade in bubbles, a scientifically proven fact. If on the other hand you are then your goal is to grow your portfolio more than you would if holding BTC/ETH for example.
Bitcoin is the big boy
How the market works is not easily identifiable if you haven't graduated from the 2017 crypto university. When there is a bull market everything seems amazingly profitable and things keep going up outgrowing Bitcoin by orders of magnitude and you are a genius. The problem with this is that it only works while Bitcoin is going up a little bit or trades sideways. When it decides to move big then altcoins lose value both on the way up and on the way down. The second part is obvious and proven since all altcoins from 2017 are at a fraction of their BTC value (usually in the range of 80% or more down). Also, when BTC is making a big move upwards everyone exits altcoins to ride the wave. It is possible that the altcoin market behaves as an inversed leveraged ETF with leakage where in a certain period while Bitcoin starts at 10k and ends at 10k for example, altcoins have lost a lot of value because of the above things happening.
We are doing it anyway champ!
OK so we understand the risks and just wanna gambol with our money right? I get it. Why do that? Because finding the ideal scenario and period can be extremely profitable. In 2017 several altcoins went up 40x more than BTC. But again, if you don't chose wisely many of them have gone back to zero (the author has first hand experience in this!), they have been delisted and nobody remembers them. The actual mentality to have is very important and resembles poker and other speculative games: A certain altcoin can go up in value indefinitely but can only lose it's starting investment. Think about it. You either lose 1 metric or gain many many more. Now that sounds amazing but firstly as we said we have the goal to outperform our benchmark (BTC) and secondly that going up in value a lot means that the probability is quite low. There is this notion of Expected Value (EV) that poker players apply in these kind of situations and it goes like that. If you think that a certain coin has a probability let's say 10% to go up 10X and 90% probability it goes to zero it's an even bet. If you think that probability is 11% then it's a good bet, a profitable bet and you should take it. You get the point right? It's not that it can only go 10X or 0X, there is a whole range of probability outcomes that are too mathematical to explain here and it doesn't help so much because nobody can do such analysis with altcoins. See below on how we can approximate it.
How to evaluate altcoins
A range of different things to take into account outlined below will form our decision making. Not a single one of them should dictate 100% of our strategy.
It's all about market cap. Repeat after me. The price of a coin doesn't mean anything. Say it 10 times until you believe it. I can't remember how many times I had conversations with people that were comparing coins using their coin price instead of their market cap. To make this easy to get.
If I decide because the sky is blue to make my coin supply 100 Trillion FoolCoins with a price of $0.001 and there is another WiseCoin with a supply of 100 Million and price of $1 then FoolCoins are more expensive. - Alex Fin's Cap Law
This is done usually in the stock world and it means that each company has some fundamental value that includes it's assets, customers, growth prospects, sector prospects and leadership competence but mostly centered in financial measures such as P/E ratios etc. Valuation is a proper economic discipline by itself taught in universities. OK, now throw everything out of the window!. This kind of analysis is impossible in vague concepts and innovations that are currently cryptocurrencies. Ethereum was frequently priced at the fictional price of gas when all financial systems on earth run on the platform after decades (a bit of exaggeration here). No project is currently profitable enough to justify a valuation multiple that is usually equal to P/E in the thousands or more. As such we need to take other things into account. What I do is included in the list below:
Check Github. You need to make sure there is active development for the platform and it's a very bad sign if the project is either keeping the code closed source or even worse there is simply no development. No projects are "complete".
Check Website. If the website is written in bad English the Chinese google translate type it means that they are not serious enough to produce an unbreakable decentralized project. If you can't write English you can't change the world, period. That's a deal breaker.
Check Team's Linkedin. Numerous projects have either fake Linkedin accounts or the team is comprised mainly by unexperienced employees that are even shown to be working in other companies currently.
Check backers. Projects that have Binance, Coinbase or Silicon Valley VC funds backing them are way more legit but way more overpriced too!
One of my favorite ways to value altcoins that is based on the same principle in the stock market is to look at peers and decide what is the maximum cap it can grow to. As an example you take a second layer Ethereum solution that has an ICO and you want to decide if you will enter or not. You can take a look at other coins that are in the same business and compare their market caps. Thinking that your coin will outperform by a lot the top coins currently is overly optimistic so I usually take a lower valuation as a target price. If the initial offering is directly implying a valuation that is more than that then there is no room to grow according to my analysis and I skip it. Many times this has proven me wrong because it's a game theory problem where if many people think irrationally in a market it becomes a self-fulfilling prophecy. But since there is opportunity cost involved, in the long run, getting in initial offerings that have a lot of room to grow will pay off as a strategy.
In 2017 the sexiest sector was platforms and then coins including privacy ones. Platforms are obviously still a highly rated sector because everything is being built on them, but privacy is not as hot as it used to be. In 2018 DEXes were all they hype but still people are massively using centralized exchanges. In 2020 Defi is the hottest sector and it includes platforms, oracles and Defi projects. What I am saying is that a project gets extra points if it's a Defi one in 2020 and minus points if it's a payment system that will conquer the world as it was in 2017 because that's old news. This is closely related to the next section.
Needless to say that the crypto market is a worse FOMO type of inexperienced trigger happy yolo investors , much worse than the Robinhood crowd that drove a bankrupt company's stock 1200% after they declared bankruptcy. The result is that there are numerous projects that are basically either vaporware or just so overhyped that their valuation has no connection to reality. Should we avoid those kind of projects? No and I will explain why. There are many very good technically projects that had zero hype potential due to incompetent marketing departments that made them tank. An example (without shilling because I sold out a while back) is Quantum Resistant Ledger. This project has amazing quantum resistant blockchain, the only one running now, has a platform that people can build tokens and messaging systems and other magnificent stuff. Just check how they fared up to now and you will get the point. A project *needs* to have a hype factor because you cannot judge it as normal stocks that you can do value investing like Warren Buffet does where a company will inevitable post sales and profitability numbers and investors will get dividends. Actually the last sentence is the most important: No dividends. Even projects that give you tokens or coins as dividends are not real dividends because if the coin tanks the value of the dividend tanks. This is NOT the case with company stocks where you get dollars even if the company stock tanks. All that being said, I would advice against betting on projects that have a lot of hype but little substance (but that should be obvious!).
How to construct your portfolio
My strategy and philosophy in investing is that risk should be proportional to investment capital. That means that if you are investing 100K in the crypto market your portfolio should be very different than someone investing 1K because 10% annual gains are nothing in the latter while they are very significant in the former. Starting from this principle each individual needs to construct a portfolio according to how much risk he wants to take. I will emphasize two important concepts that play well with what I said. In the first instance of a big portfolio you should concentrate on this mantra: "Diversification is the only free meal in finance". In the case of a small portfolio then this mantra is more important: "Concentrate to create wealth, diversify to maintain wealth". Usually in a big portfolio you would want to hold some big coins such as BTC and ETH to weather the ups and downs explained in previous paragraphs while generating profits and keep progressively smaller parts of your portfolio for riskier investments. Maybe 50% of this portfolio could be big caps and 10% very risky initial offerings. Adapting risk progressively to smaller portfolios makes sense but I think it would be irrational to keep more than 30% of a portfolio no matter what tied to one coin due to the very high risk of bankruptcy.
The altseason is supposedly coming every 3 months. Truth is that nobody can predict it but altcoins can be profitable no matter what. Forget about maximalists who are stuck in their dogmas. Altcoins deliver different value propositions and it makes sense because we are very far from a situation where some project offers everything like Amazon and we wouldn't even want that in the first place since we are talking about decentralization and not a winner takes all and becomes a monster kind of scenario! Some last minute advice:
Stay out of paid telegram/discord pump groups. They are deadly for your wallet.
Avoid jumping on overhyped coins that have pumped massively during the last days without any very important news.
Don't keep coins in obscure exchanges for too long or you will get burned with certainty.
Stop thinking that your coin will 1000x and overtake Bitcoin!
P.S If you find value in reading this and want more weekly consider subscribing to my newsletterhere
What was Bitcoin's value over the last several years on October 1st? In 2012 it was super low at $11 USD, with the first halving only 2 months away. In 2013 it was at $127 and the Cyprus banking crisis hit the financial markets. Also, during 2013 was the first time Bitcoin passed the price of gold for a brief moment. In 2014 it was valued at $387. By the end of the year it was given the title by The Guardian as the worst investment of the year. Mt.Gox exchange had failed and Ethereum did its ICO (Initial Coin Offering) and the silk road website was taken down. Tim Draper bought a good chunk of Bitcoins at auction and was predicting it to go to $10,000. In 2015 it was lower at $238 but in 2016 the price was at $614 with the second halving having happened. During 2017 it reached a lofty $4404. 2017 also was when ICOs became popular with a few blockchain projects raising over $200 million. In 2018 Bitcoin was at $6601 and the ICO frenzy died. During 2019 it was $8334 and some exchanges continued to get hacked. Bakt opens futures trading and bitcoiners are talking about the third halving in 2020. And so today bitcoin is valued at about $10,600. Most of those years saw massive changes up and down in value. For example, in 2013, there was a massive rise of 10,250% from $12 to $961 but in 2014 it dropped 52%. If you look at Bitcoin valuations from the October 1st lens it seems like a great time to buy especially after a halving. We continue to see Bitcoin as the number one crypto for a portfolio even though almost every week we see another new cryptocurrency pop up. Some of them even hit the top 10 on Coinmarketcap very quickly. For example, UNI (Uniswap) is up over 2700% on Binance since it was listed on Sept.17, 2020. But history shows that most altcoins over the long term are not very successful. Be careful of FOMO but happy investing, From the Madbyte Team. -- In summary, Bitcoin, on October 1st was: 2020 - $10600 2019 - $8334 2018 - $6601 2017 - $4404 2016 - $614 2015 - $238 2014 - $387 2013 - $127 2012 - $11
I just want to start by saying that I saw this coming around 2 years ago and posted about it here. My biggest concern that COSS never seemed to understand is that exchanges survive on TRADING VOLUME, not listing fees. Sure, listing fees are a nice bonus and in massive bull markets you can milk projects for a lot, but in bear markets nobody will pay listing fees and it is not a sustainable business model to force coins/projects to pay massive amounts to list. An exchange that relies solely on listing fees will always go under in a bear market. Ignoring Binance as an outlier that can still collect listing fees, the exchanges that are thriving now are the ones that have all the coins a person could want, like Kraken, and listed those coins because it made their exchange better for the longrun. Meanwhile, COSS continuously tried to milk great projects like Nano for listing fees rather than listing them for the long-term benefit of the exchange. Yes, some people didn't want to trade on Coss due to the low volume on many markets, but the nail in the coffin was not having all the major popular projects listed that people wanted. Anyway, on to the point of the post: Coss should try to stay afloat for awhile longer. If that means dropping nearly all employees, selling the platform to a company with the funds to maintain it, anything- Coss should try to stay open and give crypto a chance. We have just endured a vicious downward spiral over multiple years and all projects are in bad shape in general. I have seen this happen in every single crypto cycle (although this one is the most severe, due to the amount valuations rose in 2017). From 2014-2016, exchanges and crypto companies were closing left and right. Circle got rid of their bitcoin wallet and tried to compete with Venmo. And what happened? Every single one of those exchanges and companies ended up regretting it, big time. Many never were able to get back in because it was too late. It felt like crypto was dead and hopeless during that entire 3 year period - morale was just as bad as it is now. The companies that managed to stay open through that 2014-2016 bear market (usually running at a loss for years) became GIANTS when the market flipped. Small companies like Bittrex became massive as people flooded back into the space, like they always do after huge crypto bear markets start to come to an end. People start wanting to try to buy the bottom, and the bottom starts rising... I don't work for Coss and I don't claim to know its financial situation, so perhaps it's simply impossible for the company to continue on running without funds. Obviously they are a bit strapped for cash considering the 2nd ICO attempt and such. But I just want to say that:
There is a good and very realistic chance we are at or around the bottom right now, and most decent exchanges (Coss included) will go from operating at a loss to making a (potentially big) profit within a few years
Every single time we're in a bear market, people totally seem to forget how insane crypto can be during the bull cycles (I was around for the 2013 and 2017 bull runs), and everyone wants to be a part of it. It probably won't be as insane the second time around unless there is a major breakthrough in technology or adoption (lightning network on BTC maybe?), but if you remember just about ALL exchanges in Dec 2017-January 2018 had to literally CLOSE due to servers crashing from so many new members flooding in. Shutting down the exchange now destroys all hope of being involved in anything like that bull cycle again in the future, and there is a realistic chance that Coss or any exchange that decide(d) to close (Coinexchange and many others right now) will seriously regret the decision within a few years
It's tough to say where crypto is headed and if it will ever be successful. I think it has a great chance to "make it", but who knows. But one thing is certain - closing down now guarantees that you will 100% be excluded from any/all bull runs that might occur in the future. Staying afloat and running at absolute minimum capacity (minimum support/no new dev work, just maintenance, as the exchange works pretty well right now) will at least give COSS a chance to survive and possibly even thrive in the future again. I hope they choose the latter option.
Bitmain Raises $400 Million in Pre-IPO Funding, Now Valued at $12 Billion: Report
https://preview.redd.it/idmn8yynmf311.jpg?width=760&format=pjpg&auto=webp&s=8345ae872ab639dccd2ae603b5f9972323adee2d Bitmain, the dominant force in bitcoin mining, has reportedly raised $400 million as it gears up to go public later this year. Regional media outlet China Money Network reports that the funding round, which values the China-based firm at $12 billion, was led by Sequoia Capital China, a VC that has been quite active in the nascent cryptocurrency space. Bitmain has not yet confirmed the funding round publicly. The $12 billion valuation matches Bitmain’s internal estimates but exceeds that of many external analysts, who estimated that the firm was worth between $8.8 billion and $10 billion. According to the report, Bitmain plans to hold an initial public offering (IPO) on the Stock Exchange of Hong Kong in September and expects to go public with a market cap between $30 billion and $40 billion. Bitmain, which was founded in 2013, designs application-specific integrated circuit (ASIC) chips and manufacturers cryptocurrency miners. It currently controls 80 percent of this market, though a number of upstart competitors hope to chip away at its dominance. Bitmain’s largest competitor, Canaan Creative, recently filed to hold an IPO in Hong Kong. The firm, whose devices account for roughly 15 percent of the bitcoin mining market, believes it can raise as much as $2 billion through the offering. If Bitmain’s IPO is successful, the firm would not only be the most valuable public cryptocurrency company but would also be worth more than two times as much as chipmaker AMD, which has a $14.8 billion market cap and has also benefitted from the cryptocurrency mining boom. As CCN reported, Bitmain has also begun to design ASIC chips for artificial intelligence-related applications, and CEO Jihan Wu has said that this field could account for 50 percent of the firm’s revenue within five years. Earlier this year, Bitmain led a $110 million funding round for US cryptocurrency firm Circle, which operates an over-the-counter (OTC) trading desk, a retail-focused brokerage app, a cryptocurrency exchange, and plans to build a USD-pegged “stablecoin.” Notably, Sequoia Capital China is currently embroiled in a legal battle with cryptocurrency exchange Binance — formerly based out of Hong Kong — who the VC firm has sued for allegedly violating an exclusivity agreement stemming from fundraising discussions held in 2017. Source
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