CRAFTING YOUR CRYPTO INVESTMENT STRATEGY.pdf

CRAFTING YOUR CRYPTO INVESTMENT STRATEGY GOALS ➔ Knowledge ➔ Understand the Importance of Research: Grasp why research is both an art and a science, and why it's crucial in the crypto space. ➔ Types of Research: Learn the different types of research methods, including fundamental, technical,...

CRAFTING YOUR CRYPTO INVESTMENT STRATEGY GOALS ➔ Knowledge ➔ Understand the Importance of Research: Grasp why research is both an art and a science, and why it's crucial in the crypto space. ➔ Types of Research: Learn the different types of research methods, including fundamental, technical, sentiment, and on-chain analysis. ➔ Introduction to Research: Familiarize yourself with key tools and platforms that aid in crypto research, such as whitepapers, social media, and data analytics platforms. ➔ Market Niches: Gain an understanding of various niches within the crypto landscape, from DeFi and NFTs to Layer 2 solutions and cross-chain interoperability. GOALS Skills ➔ CRITICAL ANALYSIS: Develop the ability to critically evaluate whitepapers, project teams, and market potential. ➔ DECISION-MAKING: Cultivate the skills to synthesize all the gathered information to make informed investment or participation decisions. SO HOW THE HECK DO WE RESEARCH THIS STUFF? CRYPTO RESEARCH ➔ Mastering crypto research is a journey that takes time, but the returns are well worth it. ➔ The decentralized nature of the space can make research challenging. However, it's precisely this decentralized, "wild west" nature that offers unparalleled opportunities for high returns— returns that often outstrip any other investment class. TYPES OF RESEARCH ➔ FUNDAMENTAL ANALYSIS: This involves evaluating a project's whitepaper, team, use-case, market potential, and community engagement. It's the deep dive into what makes a project tick. ➔ SENTIMENT ANALYSIS: This involves gauging market sentiment through social media, news, and other public communications. It's the "mood" of the market. ➔ ON-CHAIN ANALYSIS: This involves studying transaction data and other on-chain metrics to understand investor behavior and potential price movements. ➔ TECHNICAL ANALYSIS: This is more relevant for traders and focuses on price charts, trading volumes, and historical data to predict future price movements. BOTTOM UP VERSUS TOP DOWN ➔ THE TOP-DOWN METHOD is to first research and find a promising industry that you are interested in first, then explore the sub-sectors within the industry. After that analyse individual projects within a specific sector. ➔ THE BOTTOM-UP METHOD starts with inspecting individual projects first, researching the fundamentals, then looking at the general trend of the sector, the industry, and the macroeconomic trend. ➔ THE BOTTOM-UP approach can be like finding a needle in a haystack. There’s too many new projects to just sift through them all. ➔ THE TOP-DOWN method for crypto research allows you to develop an industry niche and allows you to stay on top of trends and narratives in an industry that is constantly changing. ➔ There will be countless opportunities in each niche. Don’t let FOMO (Fear of Missing Out) distract you. EXAMPLE NICHES ➔ DEFI PROJECTS: Projects that aim to recreate traditional financial systems (like lending, borrowing, and trading) on the blockchain. ➔ NON-FUNGIBLE TOKENS (NFTS): Projects that deal with unique digital assets, often used for digital art, collectibles, and virtual real estate. ➔ CROSS-CHAIN INTEROPERABILITY: Projects that enable different blockchains to interact with each other, facilitating the transfer of information and value. EXAMPLE NICHES ➔ DATA STORAGE AND MANAGEMENT: Blockchain projects that offer decentralized data storage solutions, aiming to replace or complement traditional cloud or server-based storage systems. ➔ SUPPLY CHAIN MANAGEMENT: Use of blockchain to improve transparency, traceability, and efficiency in supply chains. ➔ GAMEFI: Blockchain projects that focus on the gaming industry, including the tokenization of in-game assets. ➔ INSURANCE AND RISK MANAGEMENT: Decentralized platforms that offer various types of insurance against risks like smart contract failure, asset volatility, etc. LET’S LOOK AT SOME TOOLS TO FIND A NICHE https://coinmarketcap.com/cryptocurrency-category/ https://www.coingecko.com/en/categories EVALUATING A NICHE INNOVATION & UTILITY: ➔ Prioritize niches that bring novel solutions or address significant pain points in the crypto ecosystem or broader world. ➔ Sector Growth & Potential: ➔ Consider factors like adoption rate, technological innovation, and regulatory landscape. ➔ Community Engagement: ➔ A strong, active community can be a sign of a niche's potential. Monitor social media, and other platforms for genuine engagement and interest. RISK ASSESSMENT: Every niche will have its risks. Assess challenges, potential roadblocks, and competition within the niche. SO, YOU HAVE A NICHE, WHAT NEXT? ➔ Once you’ve found a niche you will want ways to uncover new projects. ➔ Learning about that niche and researching new projects within that niche require very different skills and sources. ➔ You can get good overview information on sectors within the decentralized space from traditional sources. ➔ But traditional sources and news outlets are way behind when it comes to uncovering new projects. ➔ CRYPTO ALPHA HAPPENS ON TWITTER. TAPPING INTO TWITTER… “X” ➔ Twitter is the major hub for crypto discussion and uncovering new projects. ➔ Use a crypto specific Twitter. ➔ Avoid liking anything political, controversial, or traditional finance related. ➔ Let the Algorithm help you. ➔ Follow reputable figures, analysts, and official project accounts. ➔ We’ve created a list that will be consistently updated. ➔ Beware of hype and misinformation. ➔ Read for the analysis and information, ignore claims of “100x gains”. WHAT ABOUT OTHER TOOLS? YOU CAN SEARCH FOR NEW PROJECT LAUNCHES IN A NUMBER OF WAYS: ➔ Coingecko ➔ CoinMarketCap ➔ Cryptorank OUR METHOD So, you found a new project you like, now you need a general framework to do a deep dive into the project. OUR METHOD AIMS TO: ➔ Decipher the project’s value proposition. ➔ Uncover the key tokenomics and token utility and see if this supports the stated value proposition. ➔ Identify any red flags in the tokenomics, team, or communications. WE SPLIT THIS FRAMEWORK INTO 3 SPECIFIC CATEGORIES TOKENOMICS | TEAM AND COMMUNICATIONS | LEGAL TOKENOMICS: THE ECONOMIC BACKBONE OF CRYPTO PROJECTS ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔ Tokenomics encompasses the principles that dictate how a token operates within its ecosystem. Tokenomics determine two things about a project: The incentives that set out how the token will be distributed The utility of the tokens that influence its demand. Where can we find this information? Whitepaper/Gitbook Review. External sites such as Coingecko and Coinmarketcap. Analytics sites such as Dune or Arkham Intelligence. FOUNDATIONAL PILLARS OF TOKENOMICS ➔ Utility and Demand: Ensure the token has a clear use-case within its ecosystem. ➔ Supply and Distribution: Assess how tokens are distributed. A large portion reserved for founders or private sales can be a red flag. ➔ ECONOMIC MODELS: Does the project employ staking, burning, or other mechanisms to influence token value and demand? ➔ INCENTIVES: Does the token incentivize behaviors that benefit the ecosystem? RED FLAGS IN TOKENOMICS ➔ NO CLEAR UTILITY OR VALUE: Tokens without a clear purpose or use-case can struggle to maintain value. ➔ LACK OF TRANSPARENCY: If a project isn't clear about token distribution, utility, or other key aspects, proceed with caution. ➔ OVERCOMPLEXITY: Overly complex tokenomics can be a sign that a project is hiding its true intentions. SOME QUANTITATIVE TOKENOMIC METRICS ➔ ➔ ➔ ➔ ➔ ➔ Market Capitalization The total value of a cryptocurrency, calculated by multiplying the current price by the circulating supply. Total Supply The maximum number of tokens that will ever exist for a particular cryptocurrency. Circulating Supply The number of tokens currently available to the public, excluding tokens that are locked, reserved, or not yet released. SOME QUANTITATIVE TOKENOMIC METRICS ➔ Fully Diluted Valuation/Fully Diluted Market Capitalization ➔ The valuation of a project if all tokens, including those not yet in circulation, were to be released and multiplied by the current token price. ➔ Transaction Volume ➔ The total amount of tokens or coins exchanged within a specific time frame, usually measured on a daily or weekly basis. ADDITIONAL TOKENOMIC INFORMATION ➔ Utility ➔ The specific use-case or function that a token serves within its native ecosystem. ➔ Governance Rights ➔ The extent to which token holders can influence decisions about the project's development. ➔ ➔ ➔ ➔ Vesting Schedule The timeline that outlines when team members or investors can sell their allocated tokens. Unique Active Users/Holders The number of individual users who have interacted with a particular blockchain or application within a specific time frame. WHAT ABOUT PROFIT METRICS? ➔ Unfortunately, standardized profit ratios are difficult to find or don’t apply in many cases. ➔ Typically, you can find revenue and generated fees for a particular dApp, but advanced profit metrics are few and far between. ➔ Defillama reports Price to Fees (P/F) and Price to Sales (P/S) ratios for some projects. ➔ Price to Sales Ratio can be a useful valuation method for early-stage protocols. ➔ P/S = Market Capitalization / Total Revenue. ➔ For more advanced profit metrics, you may be able to find them on Dune Analytics or Arkham Intelligence. LET’S TAKE A LOOK AT SOME SITES SOME USEFUL TOKENOMICS SITES: ➔ ➔ ➔ ➔ ➔ Coingecko Coinmarkecap DefiLlama Some Useful Advanced Analytics Sites Dune Dashboard ANALYZING TEAM AND COMMUNICATION ➔ COMMUNITY AND GOVERNANCE: A strong community and clear governance structures can indicate a project's long term viability. ➔ TEAM COMMUNICATION is vital in the decentralized primary markets. Luckily, in these markets we typically have direct access to team members and other investors: ◆ Twitter ◆ Discord ◆ Telegram KEY THINGS TO LOOK FOR ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔ ➔ How much information about the team is available? Is the team doxxed? Is there consistent turnover or issues with the team? Consistent communication and updates on twitter, discord, and/or telegram? Does the project have a roadmap? Have the dates in this roadmap been kept? How helpful is the team in discord and telegram? How is the sentiment among other investors in the discord or telegram? This is typically obvious. This space is mostly anonymous, so no one holds back? There are always people being negative in the discord (many are paid to do so). Is there only one or two people, or is it the majority of people? LEGAL ➔ Currently the regulatory landscape around decentralized projects is vague at best. ➔ While it's crucial to consider potential regulatory actions the reality is that very few projects currently face such actions ➔ Some key considerations: ◆ Could the token be considered an unregulated security? ◆ Could a project be considered an unregistered securities exchange broker? ADDITIONAL CONSIDERATIONS ➔ AUDITS: Projects should have links to smart contract audits of their platform. ➔ Most TOP PROJECTS have multiple audits now. ➔ If the project has not been audited BE EXTREMELY CAREFUL INVESTING. ➔ BUG BOUNTIES: A bug bounty is a monetary reward given to ethical hackers for successfully discovering and reporting a vulnerability or bug. ➔ BUG BOUNTIES are immensely valuable in this space. PAY ATTENTION TO MACROECONOMICS ➔ Traditional Macroeconomics are beyond the scope of this course but SUFFICE TO SAY CRYPTO MARKETS are still impacted by the overall market conditions. ➔ There are also some ”CRYPTO INDICATORS” specific to this space that are worth including in your investment thesis. ➔ BITCOIN CYCLE AND HALVING ➔ BITCOIN DOMINANCE ➔ BITCOIN FEAR AND GREED INDEX BITCOIN HALVING ➔ Bitcoin halving is a preprogrammed event in BITCOIN'S CODE where the reward for mining new blocks is halved. ➔ Occurs approximately every 4 YEARS OR EVERY 210,000 BLOCKS. ➔ ➔ Reduces the rate of new BITCOIN CREATION. HISTORICAL HALVINGS: Took place in 2012, 2016, and 2020. Each has been followed by significant price appreciation. BITCOIN DOMINANCE ➔ Bitcoin dominance refers to the PERCENTAGE OF BITCOIN'S MARKET CAPITALIZATION compared to the total market capitalization of all cryptocurrencies. ➔ A high dominance indicates that Bitcoin is LEADING THE MARKET, WHILE A DECREASE suggests that altcoins (alternative cryptocurrencies) are gaining traction. ➔ BTC DOMINANCE THIS WEEK. BITCOIN FEAR AND GREED INDEX ➔ ➔ MEASURES THE CURRENT sentiment of the Bitcoin market . IT OSCILLATES BETWEEN 0 (Extreme Fear) to 100 (Extreme Greed). ➔ FACTORS INFLUENCING THE INDEX include volatility, market momentum and volume, social media trends, surveys, and Bitcoin's dominance. ➔ LOW SCORE – Could be a great buying opportunity. ➔ HIGH SCORE – Could be due for a correction. REFINING YOUR INVESTMENT STRATEGY ➔ Define your goals: Short-term trading vs. long-term holding. ➔ Decide on exit strategies early: I like to set two price targets at a minimum. 1. Price to withdraw my initial investment. 2. Price to sell and exit my remaining position. ➔ Diversify: Don't put all your eggs in one basket, but don’t spread yourself too thin. ◆ In the early stages of investing, your portfolio should be less than 10 assets total. ➔ Stay informed: Regularly review and adjust based on new information. Keep twitter updates on, check a projects discord regularly. ➔ Risk management: Only invest what you can afford to lose.