Article contributed by Tin Money. Follow them on Medium here.
Bitcoin = The Beatles
If you have an engaged social following, I present you a challenge. Post the following statement on Twitter, Facebook, or whatever your particular social poison is:
I don’t get the Beatles. Most overrated band ever.
See what kind of response you get. Then wait a week or two and post this one:
I don’t get Bitcoin. Most overrated crypto ever.
Of course the responses are going to be different. But I’ll bet you a $atoshi the tone of the responses is exactly the same.
The Beatles fans will come out in droves and berate you for your lack of understanding and/or sophistication. They will drone on endlessly about all the revolutionary things The Beatles did for music.
Likewise, the Bitcoin fans will also come out in droves and berate you for your lack of understanding and/or sophistication. And they too will drone on endlessly about all the revolutionary things Bitcoin has done for crypto.
Doesn’t that seem odd?
Funny thing is, you could probably do this same experiment with any band and any crypto project. From Britney Spears to Adele, and from Dogecoin to Solana, you’re going to get a lot of very passionate opinions from the fans.
In fact, there’s probably a Squid Game Token fan out there somewhere that’s still hoping it’ll make a comeback. Big question is: are you a fan or an investor?
Fans vs Investors
If someone criticises a crypto project you’re invested in, do you get angry? Do you feel compelled to defend the project? Do you make excuses for shortcomings, like the network repeatedly going down, or bad tokenomics?
If the answer is “yes” then chances are good you are a fan of the project. That’s totally fine, as long as you recognise you are a fan. The trouble with being a fan is it destroys objectivity.
To be a successful investor, you must remain objective. Thousands of Terra Luna investors got rekt because they failed to remain objective about the project.
There were clear warning signs all along. The people talking about those warnings were often ridiculed or attacked by everyone from the founder to the fans. They all paid a terrible price for their devotion.
It doesn’t matter if you’re a hedge fund managing billions, or a retail investor managing hundreds, we’re all vulnerable to emotional attachment to projects.
Oddly enough, the same thing happens in the music industry too. What usually happens is a record executive will discover a string of bands that “make it”. Then they pick a band that struggles to gain a following.
Their early success creates overconfidence in their ability to find talent. Then when something challenges that ability, rather than admitting they made a mistake, they keep doubling down and pouring more resources into the failed project.
The record executives that enjoy long careers don’t let themselves get caught in that trap. They recognise the music industry is fickle, tastes change, and that narratives don’t dictate how the music buying public reacts.
The point here is, as a crypto investor, the same general rules apply. The crypto industry is fickle, tastes change, and narratives don’t dictate how the crypto market is going to react.
The Music Industry Business Model
Back before dogs were tame, I worked in the music industry. Much like crypto today, back then I was similarly fascinated by how the industry worked.
And like today, I was a total music industry nerd. Most of these numbers are from memory. I know the industry has changed a lot since then. But this is just to give a rough idea of what the industry looks like and how it runs.
Artist and Repetoire (A&R) representatives are tasked with finding and developing music talent. Their job is to go out and look at thousands of artists to potentially bring to a record label.
Generally speaking, they are going to “sign” (give a recording contract) to a couple hundred bands. The vast majority of those signed bands will lose money (something like 80%). Around 15% will break even, 4% will make money, and the last 1% might generate parabolic returns.
What’s this got to do with crypto? Crypto venture capitalists (VC) end up with almost identical numbers. A typical VC will receive 3000–4000 applications. Of those they’ll pick around 200, of which around 15 will generate a return.
Eerily similar, right?
They’re similar because they’re both essentially doing the same thing. They identify potential and then they throw it against the wall and see what sticks.
The trouble with being the “next big thing” in music is most bands won’t be. Same is true in crypto. I know there are a ton of crypto fans out there hodling like crazy, hoping the XYZ token they bought back in 2017 is going to go back to its all-time-high.
Chances are good it won’t.
Much like music, community is central to keeping a band alive. The Beatles community is deep and wide. And because of that, The Beatles continue to sell albums like crazy to this day.
But do you remember American Breed?
I suppose it’s possible you heard that song in an advertisement for laundry detergent or something like that. Point is, they were poised to be the “next big thing” back in the day.
Didn’t happen. They hit an all-time high (one hit) and then they faded.
Likewise, the Bitcoin community is deep and wide. Thus, chances are good Bitcoin is going to keep selling like crazy as well.
But do you remember Worldcoin? It was a top-10 crypto project in 2014 and was going to be the “next big thing”.
That didn’t happen either. It hit an all-time high in 2014 and faded.
In fact, most alts will never regain their all-time highs. And, yes, that includes the latest “next big things” like Solana, NEAR, or Polygon.
If you’ve been around the crypto game for a while, some of these names will be familiar. You might have even invested in them back in the day. Would you invest in them now?
Probably not, right?
But I can just about guarantee you there are die-hard fans that are still holding on to those coins to this day. Just like there will be die-hard fans still holding on to Solana or NEAR (or whatever) years from now if they never regain their all-time highs.
Bitcoin vs Alts
Investing in alt-coins is like investing in a flavour-of-the-month band.
As I pointed out in this article, for the overwhelming majority of crypto investors, dollar cost averaging (DCA — regular interval buys, like once a month or once a week) Bitcoin is going to be your best bet.
Provided the Bitcoin narrative holds true, you will likely see your wealth increase steadily by just doing that. You can absolutely make a killing with alt-coins if you recognise them for what they are: one-hit wonders.
Most crypto projects don’t have any real-world utility. Most “use-cases” for crypto involve crypto. As in, we don’t “use” crypto at the store, in our homes, at work, or anywhere else really.
That is probably going to change in the coming years. But for right now, when we buy into a crypto project, we’re buying the narrative and little else.
And statistically speaking, if you’re buying an alt-coin after it has hit an all-time high, it’s like becoming a fan of Hoobastank today and hoping you’ll get to see them sell out Wembley Stadium.
Anything’s possible, but I wouldn’t bet on it.
Nobody knew in 1965 that The Beatles would end up selling 600 million albums over the next 55 years. And nobody knew that Insane Clown Posse would create a legion of uber die-hard fans and outsell hundreds of Grammy winning one-hit wonders in between.
Likewise, NOBODY knows if Solana (or whatever) is going to be the next Elvis Presley or the next Gnarls Barkley. But if you’re betting the odds, chances are good the alt-coin you’re looking at is going to be Gnarls Barkley.
Point is, you won’t know for sure until after Solana (or whatever) tanks or solidifies. The best you can do is play the odds.
If you’re a super-fan of Solana (or whatever) already, then all you’ve done is make it harder to step back and see the odds for what they are. And what I hope you can see is, the odds that projects like NEAR, Solana, Polygon, Polkadot, Cardano etc. will regain their all-time highs are not great.
Alts with Revenue
If you’re hell-bent on speculating on alts that have already hit an all-time high, I’d recommend you orient your dollars towards projects that have an actual, dollar-denominated (not crypto) revenue stream.
Here are a few ideas:
Frax Shares (FXS)
Binance Coin (BNB)
All of those projects have had previous all-time highs. And all of them have verifiable, dollar-denominated income streams.
What the revenue stream gives you, as an investor, is an additional (and more reliable) metric than “community” or theoretical “use-case” narratives. There are probably tons of others, but those are a few I see value in.
Do I speculate on tokens that have a previous all-time high? Yes. Am I a “fan” of those projects? Yes. Do I realise the likelihood is they’ll never go back to their all-time high?
So why do I invest in them anyway? Because I’m taking a bet on their narrative anyway, despite the evidence against it. I’m betting those projects will be surprising, much like the Insane Clown Posse surprised the record executives.
And there is absolutely nothing wrong with you speculating on whatever token you might be a fan of. Just because most crypto projects never regained their all-time highs doesn’t mean they all won’t.
The takeaway is, if you are invested as a “fan”, it’s important to realise that. If you are blindly following a project without objectivity, it’s a recipe for getting rekt.
Ultimately, we’re all gambling on future outcomes. But knowing when it’s time to cut your losses is just as important as an investor as knowing when to buy into a project.
This becomes exponentially harder to do if you’re emotionally invested in your (their) thesis. Spending a ton of time chatting in Telegram or Discord with the other investors is part of what’s fun about crypto investing.
It’s also the source of the tribalism and cult-like behaviour that many investors fall victim to. Point is, it’s okay to hang out with the cult members, and it might even help you make money.
Just don’t drink the Kool-Aid.
These are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.