(Continued from Altseason Playbook, Part 4 of 6)
In my last post, I wrote about spreading your investments across many altcoins, not just a few. In this post, I offer some perspective on how to choose between two altcoins that do the same thing.
This article is adapted from my December 17, 2020 special issue of Crypto is Easy. To read the whole post, including more tips and commentary, visit Bitcoin hit $20k! Prepare for Altseason.
Remember maths
When all else is equal, small altcoins will give you better returns for the risk you take—even if their bigger competitor seems unstoppable.
It’s all about the bang for your buck, not necessarily some fundamental advantage. Find the fastest horse.
For example, $1 billion into Ethereum will barely budge the price while $1 billion into NXT will send it to the moon (100x at least).
Does that mean you should buy a tiny shitcoin and pray for FOMO?
No.
Some top altcoins have momentum, development, strong networks, and a lot of room to run.
Most small altcoins have none of that.
As long as a project is strong, active, building, growing its community, and its token solves a compelling problem in a way that brings value to the network, you can bet its price will go up—and every dollar into a small project will get you way bigger returns than you’d get with its larger competitor.
During altseason, you might look at the high price of one quality altcoin, then look at the low price of another quality altcoin that does the same thing, and decide the lower price is "cheaper" than the higher price.
It's not so much about comparing price, which is the result of lots of factors, but market cap, which measures the total worth of the altcoin's network.
When all else is equal, the smaller market cap is better even if the price is higher. You can buy a fraction of a token.
Yes, you can get into the specifics of circulating supply, emission schedule, treasury protocols, and lots of nuances. I keep these in mind when I evaluate altcoins to recommend to subscribers of my Altcoin Insights research service.
Check Out Altcoin Insights
For altseason, those specific attributes don't change fast enough to matter. As a result, you don't worry about them. They only matter for long-term investment.
Visit CoinGecko and compare altcoins by market cap, under the "Mkt Cap" column. When you look at the market cap, you can see the true size of the project, which is often different than its price.
Can’t choose? Buy both
Once developers deliver products and services for commercial and retail users, you can start to separate the wheat from the chaff. That could take a little while.
Until we start getting traction and broad usage of cryptocurrencies, smart contracts, and blockchain-based products and services, you may want to play all sides. Every segment of the market has room for multiple winners. Why pick only one?
Almost every technological niche has more than one project that survives. Pepsi is not the only soda maker. Aspirin is not the only pain reliever. Airbus is not the only plane maker.
You can build a lot of wealth from investments in their smaller competitors.
It’ll be years before the market sorts out the winners and losers. In the meantime, you can have your cake and eat it, too. Buy a few altcoins that play in the same space. For example, check CoinGecko's DeFi Index and drop some sats into a few big ones and small ones.
If one altcoin dies, you win with your others. If a few stagnate, you only need one to succeed and you’ll make up for the losers many times over.
Stay tuned for strategy #6.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio.
Originally published on Voice.com.
