Bitcoin has gone parabolic, and there will be many investors grumbling out of bitterness that they have once again missed the Bitcoin boat. I understand, having missed the boat in 2013 when I couldn’t find a way to buy Bitcoin easily. In my hunt, I ended up on the Silk Road boggled by what was on offer and suddenly shocked that Bitcoin was for sale at $80 a coin.
$80 I thought? 80 cents maybe. I’d buy $100 worth for a laugh if I could have a nice little stash, but $80 a coin, that’s almost like buying a tenth ounce gold Canadian maple.
We all make such mistakes as anyone who saw Apple (NASDAQ:AAPL) at a price adjusted 17¢ will attest. There are many stocks you could have put $10,000 into way back and now be on the beach sipping a mojito, and some of us have more excuses than others to have not made those now obvious trades.
‘Captain Hindsight’ can be a bitter companion.
So, where can we climb on a boat that is likewise going to set sail for fortune? Can you pal up with Colonel Foresight and put some money into a glorious ‘hold forever’ position, which has a great chance of being a 10x or even a 100x?
I was annoyingly reminded by a journalist that five years ago I had said Tesla (TSLA) would go to the moon. I’d forgotten I made that prediction and didn’t buy Tesla because, when it comes to stocks, I’m a value not a Momo guy, and value works just fine for me. The Tesla thinking was simple: crazy Nasdaq darlings go to a $200bn market cap. Why? Who knows, they just do. $200bn is a kind of terminus for wunder stocks. Well, not anymore. That was the target years back, and I saw no reason why Tesla wasn’t going to do that because it clearly was one of those wunderkind companies. In my mind, it runs against sanity – at least mine – so I can’t actually buy and hold shares on this reasoning; more fool me. Parachuting looks like fun to me, but I’m still not going to jump out of a plane, I’m just not that kind of risk seeker.
I don’t short, and I don’t buy glory stocks because it doesn’t fit my psychology. Hence, it is strange that I seem to be able to take crazy positions in crypto with exactly the opposite mentality. So, while I might be able to call Tesla but not buy it, I’m happy to call crypto and be up to my ears in it, however, demented the investment scenario.
The trouble is if you want to capture the 10x or 100x return scenario, the situation has to be off the scale mad and you along with it. How else can you expect to earn exponential returns from being right, and hold on the whole time through immense volatility and years of patience and ever-increasing financial impact from the day-to-day swings? It’s a hard road to be that person who sold their house to buy Bitcoin and instead lived in a tent.
Apple, Amazon (AMZN), Bitcoin were all utterly ‘off the dial’ risky at their lows and remained so in many ways for all of their ride to superstardom. Going from zero to hero is a tightrope walk; it can’t be any other way, or every company would be on the same path. True believers do not see that risk because they are sure what they hold is magic. Without that certainty, you simply cannot buy and hold forever an asset that is going up multiples. That’s because, pretty soon, you are going to be waking up every night in a cold sweat imagining your financial world might fall apart at any moment if things go wrong.
To know that many have their whole financial world tied up in one miracle stock, still to this day beggars my belief, but it is still so terrifyingly common.
But where is the next steamer to investment paradise?
Crypto DeFi and the Ethereum ecosystem
For me, it is simple. It’s mad, it’s bad, it’s dangerous to know, it’s crypto DeFi: the revolutionary world of decentralised, permission-less finance.
Ethereum, the no. 2 crypto, is a king crypto currency for DeFi because by its nature its blockchain acts as a decentralised computer running on a decentralised network. You can pay it to hold money and process records, which is what essentially you do with a bank, an insurance company or any financial institution. Blockchain can disintermediate all that and the process has begun. DeFi will, in the next 30 years, make many financial institutions – as we know them – obsolete and invent the next level of exciting financial environments that will generate gigantic wealth. It is a ‘when’ not an ‘if’.
So, that’s a prospect to get all delirious for.
It is these DeFi products – often wrapped into a new kind of corporate entity that barely exists called a DAO (Decentralized Autonomous Organization) – that are yet another revolutionary development. The DeFi project tokens and decentralised computer programs are, in effect, owned and controlled by the token holders, and revenue from their project feeds back to the token holders by a number of elaborate financial blockchain innovations.
The programs, called smart contracts, operate independently of central control and are the core of DeFi projects. They generate money by offering financial services, and these fees get distributed to the token holders, and that often feeds back into the equivalent of ‘stock buybacks’ of the tokens so that the program itself becomes a cash flow to its token-holding owners. It can all be very, very complicated and nigh on Byzantine, but these DeFi projects with their smart contracts, token holders, developer communities and decentralized governance represent a revolution that can be judged alone on its ongoing flood of incredible creativity and leading edge technical excellence (woeful geek humour and terrible artwork).
DeFi is the next ship about to set sail.
Its first bubble was this summer when the early adopters woke up to DeFi project token prices going from nothing to a lot. They have fallen back nicely and are starting to tick back again.
Now, with Bitcoin exploding, the clock is running for DeFi taking off again.
I have been acquiring tokens in anything that looks like a real project to my jaundice eye. I’ve seen a lot of software development over 40 years and the trick for investing in tech is to separate the real projects from the wishful ones.
Uniswap is the big name in this space, and it has a value of about $500m. It will definitely be worth $2bn if it doesn’t have a bad accident and burn to the ground. The sky is the limit for any DeFi project that can be the Microsoft (MSFT), Apple or Amazon of the space, but the risk of catastrophic failure is ever present in the Crypto Universe. However, over time, that likelihood recedes as untold hacker onslaughts fail to breach the project’s defences. The winners will be worth $200bn in 10-20 years, and those winners probably exist right now; Uniswap has a decent chance of being one of them.
There is no better place to start looking for investment candidates than on Coinbase’s list of tokens, and it is without doubt a kingmaker of DeFi. Coinbase seems to do a lot of ‘due dil’ before it lists tokens on its main site, and it seems picky, which is a great leg-up for a beginner.
Meanwhile, my favourites are (and I hold):
Uniswap – to my mind, the leading decentralised exchange. It’s an awesome project.
Algorand – an alternative blockchain with good potential
Maker – creator of the sizzliest Stablecoin: Dai
Aragon – the current go-to platform for token governance
Pickle (don’t laugh) – a yield farming project which aggregates income opportunities and has a solid community
Compound – saving and lending platform with strong Silicon Valley ties
I am acquiring all sorts of tokens. It’s a buy and hold strategy where I buy small clips of exciting tokens whenever I get the itch.
I am sure DeFi will have a big run within the next 12 months and then many will feel they have missed the boat. FOMO is a big driver in crypto and for good reason.
You don’t have to jump onboard this opportunity, but you do owe it to yourself to study this new phenomenon because it is going to be a massive opportunity whether you care to jump on or not.
Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I hold Uniswap, Algorand, Pickle, Maker, Compound, Aragon.