One of the toughest things to do when it comes to crypto is to figure out how to value stuff: coins, tokens, projects, ecosystems, whatever. People are always asking me how I approach this, or whether I think a certain project is overvalued or undervalued, or what my price targets are.
There’s no simple answer that I can give — mostly because I don’t think there is a simple answer. There’s an art and science to investing, but when it comes to crypto specifically, I think it’s like 98% art and 2% science. In other words, it’s a brave new world and most of us are just making this shit up as we go along.
I generally think that trying to apply tradfi models and formulas to crypto investing is a sucker’s game. It’s apples and oranges, except not even normal oranges, our oranges have freaking laser eyes!
So today I thought I’d write out a bunch of the things that go through my head when I am deciding whether to buy, sell, or hold a position. When manage my portfolio or run through my magic wand thought experiment, how do I determine what decisions to make? What makes me more bullish one one thing over another?
NB: In my usual style, I started writing and hit thousands of words before even getting close to feeling like I was finished. So this is Part 1, and I plan to release Part 2 next week.
Alright, without further ado, here’s what we’re discussing today:
Moat, Moat, Moat
Looking through a relativistic lens
Aligned incentives
Who’s the buyer?
1. Moat, Moat, Moat
It’s always ironic to quote Warren Buffet (or Charlie Munger) in the context of crypto, given how anti-crypto they’ve both been, and also how diametrically opposite the idea of value investing is with most of what we degenerates do on a day to day basis. But in spite of his distate for crypto, we can still learn a thing or two or fifty thousand from The Oracle of Omaha.1
What’s a moat? In this context, it’s basically the advantage you have which prevents a competitor (new or old) coming along and eating your market share. Or in other words: what’s to stop someone else doing what you’re doing?
Let’s look at some examples.
Bitcoin — tremendous moat. Aside from anything else, it has something literally no token can ever take from it: it was first.
Kaito — decent moat. Kaito is an InfoFi project that has established an analytics platform using propritary data, they have made partnerships with dozens of major companies in the space, and they have built a lot of good will from their users, many of which are the largest influencers on Twitter.
Random Meme Coin of the Day — basically no moat. This is proven by the fact that there’s a billion meme coins every day. There’s no barrier to entry, there’s basically nothing unique about any of them, and it’s all a game of hot potato. You can make money throwing the spud around, but don’t fool yourself into thinking your 16-hour-old token has a moat.
Established Meme Coin of the Year(s) — slightly more moat than the above. Here we’re looking at things like DOGE, MOG, PEPE, etc. Tokens that have been around for years and have a community (social moat); that have had massive drawdowns and bounced back. Possible for others to replicate, but not as easy as above. Takes time.
Moats in crypto come in many forms and sizes. You have first mover advantages, new technology, social or network effects, liquidity (this is a big one, it’s tough for a new DeFi protocol to overtake an incumbent with billions in liquidity), security (another big one), and so on.
It’s worth thinking about the moats of your tokens, and to keep the majority of your funds protected by the sharks.
