In the previous article, we talked about the most basic investment strategy in the cryptocurrency market, "Buy and Hold" (press here to read). The choice of strategies to apply depends on the time limit, resources, qualifications, skills and individual preferences of each person. In this article I will introduce to everyone the second strategy.
Although the strategy I wrote in the previous post, let's call it the # 1 strategy, the easiest and least time consuming, but there are many drawbacks. One of the strategy's biggest limitations is its limited growth potential. It will be difficult to see an increase of 10-20x.
This is why my personal preference is this strategy of "playing as a venture capitalist". In this article, I will go into more depth into the most basic issues.
How venture capitalists make money
You should know that venture capitalists are among the richest investment managers in the world. You may be familiar with big names like Ben Horowitz from Andreessen Horowitz, Peter Thiel from Founders Fund and of course Fred Wilson from Union Square Ventures.
Venture capitalists invest in early stage startups when they are still in their infancy before being known to the public as a viable investment. They are venture capitalists who are investing in the team, the vision proposed by the startups and hoping that they can successfully fulfill their vision.
Typically, the company has had some early traction and shows signs of being in the product market. But there are times when their team is completely empty, and VCs are betting on the team's experience, achievement, agility and overall performance.
Venture capitalists make investments with the understanding that not everything will go as planned but that startup teams will be smart enough to create their own products and overcome various challenges. They can be encountered in the present and in the future.
These VCs make money when a company is listed or acquired. This will be considered a homerun. They are looking for 10-20X profit. However, they know that there are not always results to take home. They will get some basic hits back, some double, and of course they leave their investment to zero.
But all of that is okay, because if you play the game properly then it doesn't matter. Let's say you scale your investments reasonably (read article 3) and you make a total of 10 investments of the same size in any given year. Then all you need to do is wait and receive all the money you spent plus some other profits - even if all your remaining investments are zero.
Use the VC playbook for cryptocurrencies
In the cryptocurrency market, we can apply this in a similar way. We look for hidden gems at very low prices. We call these gems "small caps". In general, we look to get into coins with a market cap less than $ 10 million with explosive growth potential before anyone else notices them on the market.
There are many advantages when you adopt the VC playbook for cryptocurrencies. One of the main advantages of cryptocurrencies is that unlike VC investment, you can invest a very small amount, 100 USD to 500 USD and take the risk with that money.
Another benefit is that cryptocurrencies are publicly traded and offered for sale. So you don't have to be a well-known VC to get access to a deal. You simply go to the exchange where the coin is traded, buy that coin and store it in your wallet. There are no other options and no negotiation here.
The last, and in my opinion, the most interesting aspect about leveraging VC play to crypto investing is the liquidity of the investment you put your money into. Venture capitalists typically have to wait 5 to 10 years for an investment to complete and be acquired or released to the public.
With cryptocurrencies, if an investment is 10fold overnight, you can sell it instantly and profit from it.
How to find a winner?
One of the main differences between the # 1 cryptocurrency investment strategy (investing in big coins) and the # 2 strategy (Playing VC) is the amount of time required and the level of jobs relate to.
It takes more time and resources to find the winner when applying the # 2 strategy. You must constantly keep an eye on exchanges for new listings. You then have to research each new coin to see if it is a viable candidate.
Usually, the coin or project will be relatively new and still unproven, so many of the metrics we need to use the rating are not yet available.
You will want to talk to the founders and management team and ask questions like:
Does the team have a record of working with blockchain technologies?
What is the composition of that team and is there a uniform mix of leaders, technologists, business developers, and marketers?
Are the group so reliable and have a solid reputation that they need to protect what is being created?
Usually, cryptocurrency groups are quite public
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