Why should you care what William Quigley does when adding a new cryptocurrency to his portfolio?
Because the Co-founder of WAX...
Has incubated and invested in more than 40 bitcoin, blockchain, and cryptocurrency related investments as the Managing Director of Cashel Enterprises Was one of the largest investors in the Ethereum ICO Co-founded transformative crypto companies including Tether, GoCoin, and WAX Was an early backer and largest investor in Mastercoin, the technical forerunner to Ethereum, the world’s first ICO, and the first blockchain to have smart contracts Co-founded Clearstone Venture Partners, a $700 million early-stage focused venture capital firm Co-founded idealab Capital Partners, the world’s first consumer internet venture capital firm Earned his MBA from Harvard Business School Is a CPA and a Kauffman Fellow
There’s more, but we know you want to get into the good stuff, like how he decides what to look for when adding a cryptocurrency to his portfolio.
And there are many schools of thought in this area - you have to do what you’re comfortable with. Says
Craig Russo, co-founder of Sludgefeed: “If you’re looking to limit volatility in crypto investing, I’d recommend leveraging a dollar cost averaging (DCA) approach. This essentially means you spread out your crypto purchases over time to reduce the impact of day-to-day volatility. This is an especially effective method to building a long-term… portfolio.”
BitBoy Crypto takes a different approach: “I know about most significant coins. However, if one pops up that I haven't heard of, I research it. If it skyrockets from outside the top 100 to the top 50, then I assume it's probably a ‘pump and dump’. If it stays in the top 100 for an extended period of time, then I will research it and probably cover it on a segment on my channel. Unless someone has inside info, I generally tell my audience to stick to projects in the top 50 to top 100, because anything outside of that is much riskier.”
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Today I want to run through five things I do when adding a new cryptocurrency to my portfolio. These five things can help you filter through all the tokens that now exist, and there are literally thousands. So think of this as a sorting framework for choosing cryptos that makes sense for you to acquire.
So number one - targeting a real market. Form an opinion about whether the market this project is pursuing is addressing an existing market. If it is addressing an existing market, that can be good. Existing markets have data, they have existing customers, existing competitors. You just can assess a market more easily if you can see the data in front of you.
Now if it's a brand new market, no one is doing whatever they want to do yet, proceed with some caution. As a V.C. I have learned the biggest risk I face is market risk and I know some people say “well isn't team risk a big thing too?” Well not nearly as big a deal as market risk. A bad team can actually do pretty well in a very good market. On the other hand in a non-existent or shrinking market a great team has no hope.
Number two - facilitating a monetary transaction. So I'm talking here about a transaction with real economic value. Say selling non-fungible tokens (NFTs) for example. Will people be conducting some kind of commercial transaction on this blockchain? This is where, remember, blockchains shine. Blockchains allow for reliable and fast settlement.
Number three - is the project run by blockchain savvy principals. Now what do I mean by blockchain savvy? I mean people who understand what a blockchain is good for and what it's not good for. Now that generally means people who have been working with blockchain technology for a while. Teams who have previously built something blockchain related, people who have dealt with the challenges or setbacks of working with blockchain technology. They will have a much better understanding of the risks and the problems of working in a blockchain environment.
Number four - does the project support an existing ecosystem. So look for blockchain projects that are building a self-sufficient ecosystem where all the stakeholders involved in running the project are properly rewarded for their contributions.
For example think of the Apple or Google app stores. So what you have there is you have app developers who make a bunch of money doing well hopefully building consumer-friendly apps.
Then you have a bunch of third-party vendors. Those are the companies that support the developers with tools and services like ad networks analytics companies, marketing promotions, payments. All of those groups contribute to the success of the App Store ecosystem and in the same way you're looking for all the people supporting that blockchain ecosystem to also be properly compensated and rewarded.
Who is needed to make this blockchain project work and has the management team thought through how to motivate those groups to contribute?
And finally what I call the 70-30 rule. You could call it 80-20 or 90-5-5. Let me explain. Blockchain innovations come in bursts. So a project may not gain immediate adoption because it's dependent on something like new technology that hasn't yet arrived or a trend that's just emerging. It took time for people to understand the value of a stablecoin. It seems basic now but it took years for everybody to understand the instrumental value of Tether.
But if you simply don't have the time or the patience anymore and for a particular project, maybe it's just moving too slow for you, I would reduce my exposure to that crypto but not by 100%. I like to retain some portion just in case. Now that portion may be 3%, it might be 5%. Whatever you feel comfortable with.
It's a just in case thing. Just in case all that time and energy and money you invested in a particular thesis around the blockchain project ends up paying off. You'd love to be able to benefit from that even if it took longer than you originally thought it would.
Final point this is not investment advice, it's my opinion. You have to do what you're comfortable with but hopefully you'll be able to apply this five point framework to help you filter through the projects that are best suited for whatever crypto portfolio you're building.
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