BLOCKCHAIN: The Small-Cap Coin Rush

Source:  Coinmarketcap  (and its 300 million monthly uniques)

Source: Coinmarketcap (and its 300 million monthly uniques)

Literally everyone around us is either trading crypto or starting crypto companies. Two conclusions are possible: (1) from now on all startups are crypto startups, like all tech startups use Web and Mobile, and (2) people are chasing the dragon because it's a dragon. Checking in with investors that have gone through the DotCom experience, most say that it feels like 1997 -- where both the excitement and the bad decision-making are palpable and public. So what are the key symptoms?

The first data point is that the mainstream excitement about crypto has shifted from Bitcoin into alternative cryptocurrencies, i.e., alt coins (XRP, IOTA, ADA, TRON, ICX, etc). The reason is simple. Many people have onramped from fiat into crypto via Bitcoin in 2017. But you you have to believe some wacky things to get Bitcoin to increase 100x from here. With tradeable coins that have a $50-500 million marketcap, it is still possible to imagine (rightly or not) those 100x returns. And in fact, there is a cottage industry of Youtube personalities that keep publicly available spreadsheets that evaluate Initial Coin Offerings, Twitter day-traders working through candlesticks and resistance levels, and well-branded investment newsletters. Talk of "pump and dump" is rampant, and celebrities are leveraging influence to drive coin prices. Tetras Capital penned a great article on Coindesk about the black hole of this phenomenon, and how to navigate it.

One of their conclusions was that the cheaper the price of a particular token (not the marketcap, just the $ price), the better return it had in the last month. That's not a great investment rationale, and has nothing to do with technology or potential. So if you participate in this market, understand that while a technical innovation wave is indeed underneath it all, the current market is a set of options whose strike prices are based on sentiment, fear of missing out, and social media marketing bots.

The antidote to dragon-chasing is data. The good news is that there are some great data providers out there. If you use Google sheets, check out the Cryptofinance plugin. To track social media activity, see Solume (and the chart below that shows the correlation between social discussion and XRP price). We are impressed with OnchainFXCoinmetricsSeigniorage and Iceberg for quantitative and fundamental data. The other antidote is indexing. The best thing thing that could happen in the space are boring vanilla ETFs priced at 5 bps, tracking (1) large cap, (2) mid cap, and (3) small cap coins. We track many crypto funds that are pursuing token basket strategies, but Crypto 20Crescent Crypto and 2030 come to mind. The race is on to be the next Dimensional Fund Advisors and get your name on a business school.

Source:  Solume .

Source: Solume.