#9 Deep Dive - In Search for Best Projects
How to find the best projects to hold on to and profit?
Welcome fellow investooors! It’s crypto time so let’s dive right in. To access more content find us here on Twitter. Enjoy!
In today's edition of our Deep Dive, we'll try to explore the ways in which we can look for the best opportunities on this market, to make the best use of the time that market corrections grants us.
Those who will do their due diligence will be granted wealth, those who will leave will remain at the end of the market food-chain. The choice is yours.
Sunk Cost Fallacy
It is often said that financial markets resemble a beauty contest in which the most attractive project wins, meaning the one that garners the most attention from investors and market interest. The value of breakthrough solutions and technologies often depends solely on how effectively they can be presented and promoted. Many innovative cryptocurrency projects, like Sismo for instance, had to cease operations because they did not attract sufficient market attention or capital. They were perceived as boring and often incomprehensible, despite being groundbreaking, but did not fit into current trends. On the other hand, many worthless projects managed to make it into the Top 100 in terms of market capitalization, driven only by marketing and empty promises. An important factor in their success was also the support of funds that needed to find buyers for their tokens.
The concept of a beauty contest is closely linked to the so-called 'attention economy', which I have mentioned several times, including in the podcast. It is particularly characteristic of the crypto market, especially with respect to lower market capitalization projects, whose main value is precisely market interest—market attention is the main currency and the ability to attract it is the best product. A great example of this phenomenon is memecoins, which, once pushed to the background, usually slowly die in obscurity, similar to projects from previous cycles, the so-called 'dino coins'; projects soaked in fatigue, negative emotions, and full of investors (bagholders) who are just waiting to sell their tokens at slightly better rates than the current -90% off the entry price. However, for some reason, the price never rises, the project no longer interests anyone, and attention shifts to new trends and the next promises of 'the future of finance'.
Viewing markets both through the prism of a beauty contest and the attention economy is only part of the picture. It allows us to identify the most interesting trends and perhaps even the most promising projects. However, what really interests us is not how much is said about the project we've invested in, but how quickly its price is rising. What we often lack is the ability to detach from the sunk cost fallacy and to bet on the fastest horses in the race, that is, the currently dominant narratives.
Sunk Cost Fallacy is a logical fallacy involving continuing an action or project because of the resources (time, money, or effort) already invested in it, despite further continuation not bringing benefits—and it may even result in losses. Our decision—or rather, decision-making error, is motivated by not wanting to "waste" the costs already incurred. An example might be continuing to watch a movie we don't like just because we paid for the ticket, continuing a project in which we've invested a lot of effort and time despite it not bringing results, or holding onto a portfolio project we only keep because we want to sell it at break even—coming out even, and quickly jump to the next project we have already spotted.
However, the likelihood that our 'lagging project' will suddenly allow us to break even is not very high, and this kind of waiting often means that our spotted projects slip away. This, in turn, leads to a situation where we sell our project at a greater loss than we anticipated, and we enter a new project at a higher price because we could not reconcile the loss from the previous project.
Market’s Rejection
As interest in the crypto market by entities from the traditional finance world—particularly Venture Capital (VC) funds—has grown, the character and environment of crypto have changed beyond recognition. In the previous cycle, there was much talk about how VC funds got the best deals, leaving the average investor with less attractive projects that often came with greater risk, or acquiring projects with the expectation that we become "exit liquidity" for these funds, hoping our project will withstand the incoming supply.
Looking back, the situation in the previous cycle was not as tragic as it might have seemed; it was definitely a negative turn that surprised many people accustomed to investing on equal terms in ICOs, where everyone had more or less similar chances. Now, however, from a historical perspective, VC funds have a huge influence on what the crypto world looks like, what valuations are slowly becoming the norm—which were unthinkable just a few years ago—and they are gradually accustoming us to the fact that some projects are not worth investing in long-term, because they are only bought by those who do not understand the rules of the game.
A great example here is a recent post by Thor Hartvigsen, who created a list of new tokens catching significant market attention and crypto-Twitter buzz, yet having a very low Float index—which can be briefly explained as the percentage of tokens released. Seeing that the average float is 0.136, think about how many tokens are waiting to be dumped on the market by VC funds and early investors. On one hand, these projects may have their great moments on the market, such as between releases, when they fit into a narrative, or have an event that causes a price increase—often just before unlocks, quite coincidentally. ;) On the other hand, holding these positions as long-term investments involves the risk that buying pressure will never overcome selling pressure, causing significant price hikes. In other words, someone has to buy the tokens dumped by VCs, and now the market is waking up and starting to understand how unfair this game is, steering clear of such projects, which significantly limits their growth potential.
An Exception in the Analysis is AEVO, which doesn't exactly have a Float of 0.11, which is linked to the rebranding of the Ribbon project to AEVO and the conversion of their tokens. If we look at Ribbon, it had nearly 98% of its tokens unlocked, while for AEVO, it's just 11%, resulting in a float level of 0.11. Why is there such a difference? To convert their RBN tokens to AEVO, every investor had to submit them to a lock-up lasting 9 weeks, which caused a significant freeze in supply. As a result, the AEVO tokens that will appear in May will not be a typical token dump from VCs or insiders, but rather a result of the tokens unlocking after the conversion process. Personally, I expect significant FUD (Fear, Uncertainty, and Doubt) around AEVO at that time, stemming from a misunderstanding of this unlock, which could on one hand be a good moment to play a short position, and on the other hand be a good moment to acquire AEVO tokens if their price significantly drops.
So, where does capital and market attention migrate? The following graphic by @thedefivillain says more than a thousand words.
Looking at the market valuation expressed in billions of dollars, it's notable that memecoins are not significantly different from tokens that appeared on the market between 2022 and 2024. Most of these are supported by huge venture capital (VC) funds, and the supply is continuously dumped on the heads of those deciding to make long-term investments in these projects. Just look at the Float index, the ratio of MarketCap to Fully Diluted Valuation, which for the mentioned tokens is 24.6%, while for memecoins it reaches as high as 92.4%. Also, remember that the trend of low Float is becoming increasingly popular, confirmed by the table from Thor Hartvigsen, where the average Float was only 0.13%.
The fact is that memecoins, entering the market, usually have 100% of their tokens released, so theoretically, we don’t have the risk of tokens being dumped on us by VC funds or early investors. However, this is not entirely true, despite the prevailing opinion on crypto social media.
It must be remembered that memecoins are often created by insiders who receive tokens of a particular memecoin for free or know about its introduction to the market beforehand and are able to buy it at the very beginning. On the other hand, we also have sniper bots, which can also concentrate a large supply of tokens at the start, only to later dump them on the market, earning tens or even hundreds of times their investment.
What conclusion can be drawn?
The market clearly shows that it is tired of being used as exit liquidity by VC funds and might as well invest in solid memecoins, as in both cases we are dealing with a shell project. Although official projects may employ great technology, the tokenomics and the funds' engagement in such an opportunistic way make no one want to support or invest in such managed projects.
The first step is behind us, as we now know what type of projects not to get involved in for the long term. So where should we be looking for the best projects that could turn out to be the fastest horses in the race, thanks to limited ties with funds and better-designed tokenomics?
Matching The Baskets
One of the best ways to analyze projects is to organize them and assign them to specific categories, which greatly facilitates the final decision on whether to invest in or skip a project. Here, I won't discuss categories related to trends and narratives, but something more general that will help you organize your portfolio and implement an appropriate percentage division of positions in the wallet depending on the risk.
Core Positions - BTC/ETH
Your portfolio's foundation should consist of relatively stable assets, such as Bitcoin and Ether. I don’t see any other position besides BTC and ETH that could be included in the Core Positions circle.
Old but Legit
Projects that originated at least in the previous cycle, but are not typical dino-coins. On the contrary, they capture strong narratives and are among the strongest projects in times of market turmoil. Examples here might include Solana, Arweave, Chainlink, or Stacks.
New Shiny Projects
Projects that launched in this cycle and received positive reception, which survived the period of declining interest and are still building to become key projects in their niche or even their leaders. Examples could be Celestia, or TON.
Leading Trend of the Cycle
Every cycle has its leading theme. In the previous cycle, it was NFTs and GameFi, this time we see dominance of AI and Memecoins. Examples here include WIF, PEPE, TAO.
VC Dumpsters - Beware of These Projects
Projects with huge funds collected from VCs, which not only have massive levels of FDV but also unfavorable and unpredictable unlocks. An example here could be Ethena and Starknet.
Vapor Projects - Beware of These Projects
Projects that bring nothing new, often run by questionable teams. Often, such projects are simply scams aimed at monetizing market emotions in some niche or trend by releasing a token. In other words, valueless projects like memecoins, only here they try to pretend they are doing something.
Bonus: Best Tools I Use
Finally, I'd like to share with you some tools that I often use when analyzing projects and teams. You may know most of them, but that just shows how good these tools are, and believe me, it's precisely thanks to such tools that you can more easily connect the dots and reach interesting conclusions.
Cryptorank - Currently one of the best tools that contains a wealth of useful information; from historical price charts to vestings, unlocks, and team information.
Chainbroker - If you want to check the current ROI of funds on specific projects, Chainbroker is the perfect place to quickly find what you're looking for. There you will find much more information, but the quick access to ROI combined with vesting is essential.
Crunchbase - Go-to place if it comes to checking the connections of projects and their founders. You can often find information here that is not always publicly shared on Twitter or official project pages.
ICO Analytics - One of the better sites to check details regarding funding rounds.
A Few Closing Words
In summary, remember to first consider what your time horizon is for a given position, and whether upcoming unlocks might affect how the project plays out. Look for projects that fit into the first four baskets, and among them, look for those that perform best during market turmoil, in other words, those that outperform when the market is going up, and hold up well when it suddenly goes down.
Do not hold positions longer than you should, realize profits, and cut losses if the thesis concerning the project starts to waver or does not materialize in the time you have specified.
That’s all for today, thank you all for reading this week’s Deep Dive and see you in two weeks time! To access more content find us here on Twitter. See you there!
~ ModernEremite & Crypto o’Clock Team
This newsletter is provided for educational purposes only and does not constitute investment advice. It is not intended as a solicitation to buy or sell any assets, and readers are strongly advised to conduct their own research and seek independent financial advice before making any investment decisions. The authors and publishers disclaim any liability for any direct or consequential loss arising from any use of the information contained herein.