What’s going on in the world of crypto?
This blog is not about bitcoin at all. It’s about alt-coins. But I need to start with bitcoin to give a bit of context. You can skip ahead if you want.
Not financial Advice
I am not your financial advisor. Nothing in this blog should be considered financial advice. All investments carry risk, crypto much more than most. You might lose all of your money. So don’t invest it if you might need it.
Bitcoin
Let’s start with bitcoin. It’s important to understand what is going on with bitcoin to get a grasp on what is about to happen to the entire crypto sector. You don’t want to miss it.
Institutional demand has started — much more to come
Bitcoin is seeing strong institutional demand. This is coming from both company treasuries (e.g. Microstrategy), and from investment managers. The big name investment managers aren’t there yet, but they are coming. Investment firms like Goldman Sachs, Morgan Stanley, Fidelity, JP Morgan will start to add bitcoin to client portfolios. These four firms alone have $11 trillion of assets under management.
By the time you read this they will be closer to adding it to their discretionary portfolios. In-house training has already started. One of them will be the first mover. The others will have no choice but to follow.
Will investment managers include bitcoin in their client portfolios? Simply put they would be mad not to.
A quick google will reveal the names of many well known companies which are starting to dabble incrypto currencies (e.g. Citigroup, Square, Paypal, Visa, Blackrock..)
Why Bitcoin?
I would say the two biggest reasons why bitcoin is gaining traction with institutions are the following:
- Immutability. Nothing can be changed. The maximum number of bitcoins is hard-wired at 21 million. There is no other liquid and easily investable asset class that has this feature. It is unique.
- Regulation. Bitcoin and everything around it is heavily regulated, e.g. by FinCEN. this means that institutions know where they stand. They know the rules.
Multiplier effect
It is widely know that when new money is added to an asset class it, has a bigger effect on the market capitalisation than the amount which is added. This is for the simple reason that only a small proportion of investors are willing to sell at the higher price offered by the new money, making the price rise disproportionate to the entire market cap.
You can prove this yourself by putting in a notional buy order on Uniswap. Take a small cap, like GET Protocol, which I featured in a recent blog. You will see that by entering an order to buy a few tens of thousands, you can change the entire market cap by millions.
In bitcoin’s case the multiplier is estimated at 25x. In other words, every billion dollars of new money entering bitcoin, pushes up the market cap by $25 billion.
What would happen if investment managers put 3.5% of client money into bitcoin?
3.50% into a single investment is a fairly normal investment size for a single position. This could be a stock, some gold, a single bond, or a hedge fund.
Let’s take the four large investment firms mentioned above. 3.5% of their AUMs would be nearly $400 billion. Allowing for the multiplier effect, that would increase bitcoin’s market cap to over $10 trillion, compared with around $1.1 trillion at the moment. We would be looking at a bitcoin price of $600k+.
There aren’t enough bitcoins to satisfy the coming demand
If there’s $400 billion coming into bitcoin, the demand won’t be met from mining. Less than $20 billion of bitcoin is mined annually (based on an approximate price of $60'000). That won’t go far.
Having established that new institutional money is pouring into bitcoin, we need to ask who will be selling and where that money is going to go?
That’s enough about bitcoin. Now let’s talk about alt-coins
The previous paragraph asked a question. The answer is that the sellers are most likely individual bitcoin investors. Probably they are mostly those who bought in 2017. Some will be earlier investors and some will be later, but I think the majority will be the “2017 bitcoin crowd”. They will be supplying the institutional investors with bitcoin and, receiving in exchange, fiat.
Those 2017 bitcoin buyers bought bitcoin because they thought it was better than fiat. They still think that.
The prospects for fiat have become considerably worse over the last year. The 2017 bitcoin crowd have tasted the thrills and spills of bitcoin’s roller coaster ride. Those investors are not going to stay in fiat. That money will flow into other cryptos, starting with Ethereum, and then moving down though all the others.
The alt-coin market is smaller than bitcoin. It’s roughly 750 billion. That means it can rise faster than bitcoin for the same amount of money..
We have just entered Alt-coin season
The evidence that it has started is everywhere. Just google “Are we in alt-coin season?”. The fact is that alt-coins are up 40% on average in 15 days. I repeat “on average”. There are good ones which have doubled and less good ones which have barely moved. Yet the money continues to pour in.
How much longer will this last?
We are still at the beginning of the new bull run. There’s a long way to go. Institutional money has only just started to enter the bitcoin space, maybe less than 1% of what is to come. This means that money will continue to pour into the alt-coin space for a long time.
Have you missed the boat?
Answer: No.
The last bull run ended in 2017. Alt-coins dropped more than 90%. It could happen again, but I don’t think it will be soon. Many alt-coins remain significantly below their values at the end of 2017. Take Bitcoin Cash (BCH) as an example. On 31st December 2017 the price was $2'533. Now it is $544.78. Bitcoin cash was a fork of the bitcoin chain from August 2017. To all intents and purposes, it is the same as bitcoin, except that it is faster and cheaper to transfer than bitcoin. It’s a better bitcoin. The price fell because technically it is an alt-coin.
Most alt-coins are cheaper than at the end of 2017
Another bitcoin look-alike, Litecoin, is down from $232 to $199 from 31st Dec 2017 to now. It’s the tenth largest cryptocurrency. Most of the top coins, with the exception of bitcoin and Ethereum, are lower than they were on 31st December 2017. These include such well known names as Iota, Neo, Dash, Stellar, Monero and Eos. You can check the 31st December 2017 prices here:
So there we have it. Most alt-coins are cheap, compared to where they were at the end of the last bull run. Due to the much larger quantum of money coming into bitcoin at the moment, this bull run should take prices much higher than in 2017.
A word of caution
There is little or no investor protection around crypto currencies. Many things can go wrong, and you may have no one to turn to in order to seek redress. Therefore my motto is to “look before you leap”. you need to make sure you are investing in a coin which is likely to survive.
Scroll down a few paragraphs and you will find 10 really easy tips to help you find the “survivors”.
Top 100 coins — Are they a good buy?
Answer: Yes.
Most of the top 100 coins have sound projects and good teams. In many cases they already have a working product or service. Most of the others have a regularly updated website. You will find the latest news on progress on their websites to check the team is still active.
If you just want to benefit from the rising tide of alt-coins you could simply buy a diversified collection from the top 100 and forget about them.
Smaller alt coins
Whilst many of the top 100 alt coins could easily do 10x, there are relatively few which are likely to make 100x.
How to make 100x Gains
If you want gains of 100x, you are going to have to look at coins with smaller market caps, such as those ranked #200 and below. These kinds of small caps can easily rise 100x if there is a good story. By the same token, they could easily fall to nothing. This means you will have to do more work. You shouldn’t just buy a collection blind. Even if you do the hard work there will still be failures, so you must diversify.
What to look for — Ten top tips to find that 100x coin
Here are some of the things I look for when choosing an altcoin that can do 100x.
- Small cap. it is far easier for a coin with a market cap worth $100 million to go to $10 billion than it is for a $1 billion coin to go to $100 billion. The smaller you go, the greater the upside potential, but also the greater the risk.
- Solves a real-world problem. Look on CoinMarketCap or CoinGecko to see what the use of the coin is. Do you understand it? Could it be useful to you or to someone you can think of? A good example of a coin with a use was mentioned in my last blog (GET is used in pop-concert tickets on your phone to prevent scalping). Another example of a coin with a use is TrustSwap. By owning a certain number of tokens, you are given priority in new issues (or ICOs, / IDOs), as they are now known, and you will also receive free airdrops of new tokens or coins from time to time. Of course the biggest alt-coin with a use is Ethereum. Eth is needed to pay GAS fees whenever you execute a smart contract — e.g. to exchange one token for another, or to stake a token to earn interest. There are millions of Ethereum transactions daily, all of which require GAS. In some cases the use of a coin is quite limited. For example there are coins which are not actually needed for anything, but which allow you to vote on changes in the software. I call these “governance” tokens. They are not much use to me, so I wouldn’t buy them.
- If you can find a coin which is actually in daily use now, so much the better than a vague promise that they will have a working product “soon”. Sometimes the projects prove too difficult to complete and or team members abandon it before it is finished.
- Use adoption is growing. Simply put, you want to see new users of the token arriving and using it.
- Large untapped potential market. Ask yourself whether the planned market has a lot of potential left. If it has, that’s a good signal.
- Coin supply is fixed or sinking. Ideally you want a coin which isn’t going to be massively inflated as soon as the price goes up. Look for a fixed supply where most of the coins are already circulating.
- A regularly updated website. I like to see recent updates, explaining recent and upcoming developments. This shows you that the team have not abandoned the project.
- Faces. I want to be able to see the faces and bios of the team. Be wary of cryptos where you are not absolutely sure that the team is real.
- Community engagement. A good crypto will have a strong community on Telegram who will welcome you and help you understand the tokenomics and be able to answer your questions. If all they have to say are things like “to the moon!!!!”, then there is probably nothing worthwhile saying. Look for project members in the community chat. Are they there? Are they answering questions intelligently?.
- Elevator pitch. Could you explain to someone in four of five sentences why the crypto has a value? If you struggle to do that, you either need to study it more, or walk away.
In conclusion
We are in a rising tide of crypto prices. Money is flowing into bitcoin which in turn is causing money to flow into alt-coins. Since the alt-coin market is smaller than bitcoin the effect is leveraged. Many of the smaller altcoins, below the top 200 have the potential to do 100x, but you have to be prepared to have a look at whether the coin you are buying is actually useful.
Even if you make some mistakes the rising tide of crypto prices should see you alright. Make sure to be diversified. Avoid too much concentration in any ony crypto. It’s always going to be your biggest investment which goes wrong. Don’t have any big investments.
Update 9/5/2021
It looks like my timing (1st April 2021) when writing this article was spot on. As suggested, money is flowing into Alt-coins at a faster rate than bitcoin.
