Quality didn’t matter in the last crypto rally...yet
Chris Burniske just tweeted yesterday a screenshot from onchainfx.com (replicated below) showing that the difference in the USD value of your investment holdings between coins that have lost 80% and 90% of their values from ATH is 50%. That is, if you had $1,000 invested in two different cryptoassets at the ATH, and one lost 80% and the other 90% of their value, your holdings would currently be $200 and $100 respectively.
Suspecting Chris Burniske to be a value investor in cryptoassets, I wondered if he was implying that value investments are beginning to outperform some of the new and/or previously obscure tokens that reached lofty market capitalizations in this most recent run-up (e.g. Tron and Cardano).
To explore this, I investigated the performance of 64 cryptoassets that had A) significant liquidity over the past months AND either B) market capitalizations in the top 100 of crypto assets or C) significant buzz/dialogue from thought leaders. For example, although Civic (CVC) has a market cap that places it on the second page of Coinmarketcap, it is an often discussed cryptoasset with a substantial following under the leadership of Vinny Lingham.
These 64 cryptoassets were then assessed on performance in price between November 15, 2017, and March 28, 2018. I chose November 15 because this was during a period of temporary price stability for the majority of altcoins. For the majority of altcoins, the prices were fairly stable for the month of October and first half of November. Altcoin trading volume began to increase by mid-November, increasing from $1.5B daily in October to $5B daily by mid-November. It was important to choose a time frame where the majority of altcoins had enough trading volume to give the prices meaning (a price is irrelevant if the volume is not there for substantial trading). November 15 was a good balance of substantial trading volume and price stability just before entering the rally a few days/weeks later.
Of those 64 cryptoassets, I organized them from highest to lowest in percent price increase from November 15, 2017, to March 28, 2018 (yesterday, from time of publishing this). As 64 cryptoassets would not fit in a single bar chart on one page with a font of any reasonable size, I extracted the less well-known cryptoassets from the chart.
In the chart below, I removed the outliers of Raiblocks (NANO) and Tron (TRX) as they have percent gains that dwarf many of the other cryptoassets in the chart above.
To many value investors in cryptoassets, the above chart is probably disheartening. Many of the cryptoassets that experienced tremendous gains during the last price rally are still (even after the crash) some of the highest performing altcoins. While a full assessment of each altcoin is beyond the scope of this article, I think that many seasoned value investors will argue that a substantial number of altcoins with unseasoned development teams, questionable blockchain utility and/or little more than POCs occupy the left hand side of the charts above.
I think this in part substantiates the claim that the last price rally was a speculative bubble dominated by retail buyers. Retail buyers zeroed in on the cryptoassets gaining momentum with surrounding hype, and jumped onboard hoping for the 1,000%+ gains. Although anecdotal evidence is minimal evidence at best, I know most of the first-time purchasers that I encountered in this last rally knew little of the technology or utility of each cryptoasset. Many did not even know which blockchain the token/platform was built upon. When asked about the reasoning behind a particular investment decision, the answer usually consisted of the latest title from a subreddit post or a quote from the banner of a Facebook ad.
As a word of caution to people who are first-time crypto buyers, without the support from value investors and thought leaders in the space, many of these high performing altcoins may still have a very long way to fall. As shown in the right hand side of the chart above, many of the cryptoassets with substantial development and seasoned teams are already valued below November prices. The cryptoassets without a core group of investors holding for longterm value may be facing dark times ahead with progressive price slumps and loss of liquidity.
Without real utility or active development to withstand a bear market, many of these cryptoassets may go the way of Worldcoin, Feathercoin and a dozen more altcoins that lost 95 to 99% of their value in the aftermath of the rally in late 2013.
To close, I will leave you with a screenshot of the chart of Worldcoin — losing over 99% of its value just a few months after its explosive rally in 2013.
Disclaimer: Nothing above should be regarded as investment advice or as a recommendation regarding a course of action. Rather, these are my own personal musings on the state of the cryptoasset market.