There Will Be Blood — Crypto Market Analysis
Originally published on Medium in July 2017, less than a year after I entered the crypto market. Reproduced here as it was written.
Disclaimer: Nothing contained in this article constitutes investment advice or a recommendation to buy, or sell any investment or pursue any investment strategy.
Over the past few weeks the bears have been winning in the $Crypto market, wiping off around 40% of the total market cap. The last couple of days being the worst hit, with around 20% being wiped off in two days alone. I have been in the market for just under a year and over that time I have learned a lot about this market and the volatility associated with it. So, trust me when I say, this correction is not something that is going to keep me up at night. Relatively speaking, this decline has only taken the market to where it was sitting just over a month ago.
I have been quite vocal about $Crypto as of late and the potential of the underlying Blockchain technology. I stand firmly behind what I said — in that I believe everyone, regardless of knowledge, should have some long-term exposure to the $crypto market, even if that's only 1% or less of your net assets.
If you want to invest more, then like any other investment you would make, take the time to understand what you are investing in. Avoid being a FOMO trader! Chasing a breakout usually does not end well. To put it bluntly, do your own due diligence before putting your money on the line.
I also believe you should only invest money that you can afford to lose. $Crypto is a very speculative asset class and there are far more risks associated with entering this market compared to other markets. I suggest you take the time to get to know a project before jumping in.
I have been developing my skills amongst peers and have become more aware of market cycles and have realised that the price levels over the past month were unjustified. The Altcoin market had outpaced Bitcoin, which was outpacing the logarithmic trend channel. Thus, I believe this large correction is necessary in order for the markets to "course correct."
Market corrections are always relative to the preceding rise, which in this case, was very significant. How much further the markets will fall still remains to be seen.
In my opinion, this relates to human and market psychology. More specifically, greed, and people's infatuation with any new way to "get rich quick." As a result, there has been a huge influx of new traders trying to make a quick buck. At the end of May, Coinbase CEO and Founder announced 40,000 new sign-ups in a single day and at the beginning of July he announced that they had had 1 million new users added in the preceding month.
It seems there was a huge amount of "dumb" money (investing more than 1% of net assets) flooding the market. One can speculate these newcomers have little, if any, knowledge of the current risks these projects face or understanding of the underlying technology that powers them. My approach is to find projects I think have long-term value and invest with a long-term view. In assessing long-term value of a project, I first look at a project's Whitepaper. Here are a few things I look for in a project:
- Understand the problem being solved and the proposed solution to that problem. Is this project creating a problem to solve or does this problem need to be solved and their solution is a realistic means of doing so?
- Did the project raise sufficient funds? This is a tough one to define but you must keep it in mind. Companies need money to hire great talent.
- Explore the technology and what the team has already developed. Until there is a working product, it is just an idea.
- Is there real-world utility? How will the project be used and how does it make money? If it has no speculative utility, then the token will be worth nothing in the future.
- Research the team and each individual's capabilities. Just like a traditional VC — look for tech, domain, and marketing expertise.
- Research competition. This one is very important, as any project is sure to have competition. Check out Augur vs Gnosis, for example.
As a result of this, the excessive volatility of the market is something that does not phase me. It's a pretty basic strategy: I HODL projects like Lisk and Golem, and if the token pumps (large rise in price, in short time span) there is nothing wrong in taking some profits. I always refrain from panic selling, also known as getting REKT. I speculate these projects will have higher value in the future because of traits listed above.
Despite high volatility, which leaves many weak hands REKT, Bitcoin is maintaining the logarithmic trend, which is almost unheard of from an investment return perspective, and there are certain Altcoins following suit. With all the blood in the current market, we should see a shakeout of some inexperienced money and leave opportunity to those that understand what they are investing in and recognise the potential for this revolutionary technology.