How to choose one asset versus another
In times like these we remember 2017-2018 and the knowingly unsustainable price appreciation that was occurring. Like little rocket ships propelling assets that had no business traveling as fast or as far as what was achieved. The inevitable conclusion for assets without utility function is exactly what occurred; metaphorical and somewhat literal extinction.
Many can argue that 2020 is much of the same inflationary race fueled by mere speculative irrational pressures. Then there are folks like me that argue "this time is different". There's always a person in the bunch claiming this time it's different, even those in equities claiming 150+% market cap to GDP is entirely sustainable. Unlike equities the future for crypto appears to be increasingly appreciative as compared to even today. Even after wild gains of late, crypto can run, and run, and then run some more. This is due to a simple factor, its market cap is relatively 0 in the scale and scope of global financials.
Even at incredible inflated prices, what's pertinent in the short term is technical analysis. Combined with a well developed macro narrative, and a global financial crisis, I assert that "this time is different". If history says anything metaphoric to what may play out, the question becomes how do we choose one asset versus another? Almost all will appreciate in a mad rush of irrational gains, so the complexity is not which assets will go up or down, its which assets will go up more.
When you combine technical analysis with fundamental macro analysis, you have an ability to craft a strategic long term optimized, and short term growth portfolio. Long term assets chosen because of either decaying inflationary, or deflationary properties. Assets with these properties do not need to be babysat strictly. Definitely not as strictly as short term assets just being played for a breakout. What I opt for is risk reward skewed toward a relatively neutral position. To achieve this I prefer mid cap assets. 100 million market cap, give or take in todays market. A perfect example of this is $bnt, sitting at 98 million currently. This can easily pull a 5x, putting it at 1/2 a billion. Maybe just a 3x putting it comparable to $knc @ 300 million. Sure, small caps can turn $1,000 into $100,000, but how often does that occur? How much risk is being taken? There's never certainty, and especially as the market cap of an asset is lower, the risk is inversely proportional. There simply isn't many instance of the rally $lend has experienced, and even if there was I cannot stomach the risk.
Isolate your portfolio into distinct collections of assets. A good example was my $knc play. I'm well aware of the macro narrative, which requires me to hold a long term position, but I was also wanted to speculate on short term appreciation. Therefore, my position established @ 70 cents was about 100% greater than the long term position I was intent on maintaining. The rate of "gains trim" is truly subjective, but the goal of holding 2x the long term position size, was always to trim gains, and the more an investor sticks to the plan of action the better the outcome almost always is. I slowly worked my way down to the position size I was looking to hold for an extended period of time, and then game starts all over again with another asset.
There is never certainty that an asset will appreciate as expect, but theres absolute certainty that an investor must be in position prior to the positive price action to appreciate most of the gains. How do we choose what assets to hold, in a sea of assets that will almost all appreciate? Use a philosophy, and define a narrative. I offer sound monetary policies, recurring revenue streams, and disruptive utility as narratives to consider. Not all assets have all 3 properties. Many are disruptive of functionality strictly limited to the crypto space, and many don't have a recurring revenue stream, but some projects do possess all three attributes. The rarest of the properties is the sound monetary principles, with the strongest principle being deflation. Next would be decaying inflation, such as Bitcoin. These are essentially assets that are more scarce over time. Deflationary assets are significantly more scare over time, even compared to Bitcoin. Kyber Network is a deflationary asset. There have been many short lived deflationary assets that were complete failures. For this reason an asset must be assessed for momentum, traction, and disruptive potential of a real world system. If it produces a recurring revenue stream you've found the icing on the cake. Kyber Network disrupts traditional barter systems, providing a means of two parties to trade assets without the need for direct contact. The only thing superior to the liquidity function provided by Kyber is the pathfinding service provided by 1inch.exchange. I've written another short article on Santiment about the historic nature of pathfinding, so we'll save that story for another time.
While Kyber Network has been discussed much in this article, it by no means should be the only center of attention. There are countless assets, each have unique properties, each warrant fundamental analysis, and and each deserve distinct position sizing consideration in a portfolio. I strongly encourage due diligence, and great effort to understand projects before entering a position as a balanced portfolio is only achieved by gut instinct. Such instinct only occurs with time and effort.
Now let's get out there and find deflationary assets, that disrupt legacy financial systems, and produce recurring revenue streams. That's pretty much as good as it gets!