Insights from the Crypto Markets: Price Traps & Early-Stage Project Investments

With Binance’s announcement of their plans for a $1 billion investment fund this month, it’s worth taking a deeper dive into the impact and strategy of major funds and firms getting further involved in the cryptocurrency investment landscape.  

The cryptocurrency market has been, and likely will continue to be, highly sensitive to institutional investor money. As the baby deer-legged crypto market continues to find its ground, investment funds and firms are capable of taking advantage of all the many highs and lows.

It’s easy to forget that some of the world’s larger funds have yet to jump into crypto. This provides some substantial advantages (and disadvantages) to funds, firms, and individuals. I don’t have all the answers, nor will I pretend to, but here are some quick insights gleaned on two separate fronts: project investment and general mark trading.

A Baby-Legged Deer Market

In the tail end of 2017, seeing a project fly up by a few hundred (or thousand) percent in a matter of days became a common occurrence.

As of June 2nd, 2018, the market capitalization according to coinmarketcap of all cryptocurrencies hovers around $340B*

*note* – the actual market capitalization rate is much larger than the above figure, as it only calculates the market cap of the “circulating supply” of all crypto assets, rather than ALL of the coins, whether unmined, allocated, or locked up. However, the number is that that much larger and doesn’t change the point I’m making here, but just wanted you to know 😉

That’s not a small chunk of change for individual investors by any means, but it’s important to add some perspective.

  • Facebook has a market cap of $561B.
  • Google has a market cap of $782B.
  • has a market cap $796.52B – well over double that of the entire cryptocurrency market.
  • Apple is currently chasing down a $1T market cap.

Another psychological aspect to note is that the cryptocurrency investment world is still relatively insulated from investments from the masses. As someone reading articles such as this one, you’re simply one in a very small minority of investors.

Project Investment Insights: Stage-Based Funding

One way funds and firms qualify their asset targets is by the stage the project is currently in.

2017 was a year where projects could raise a few hundred million just on a whitepaper, but that just simply (and thankfully) isn’t the case in 2018.

The criteria for blockchain-based projects is much higher than a pure concept. Projects with functioning products and strategic partnerships tend to be much more appealing. Take Codex Protocol, for example. The decentralized title registry for the art and collectibles industry has already proven its ability to tackle the digital collectibles and art provenance industries and held a successful art auction in April at the Ethereal Summit (the one where a Cryptokitty got sold for $140k).

“We like to contribute and assist in early stages of development. This provides us the best chances to analyze the projects by their progress, as well as guide and assist the teams with our experience and resources to make sure targeted objectives get reached in time. The most gratifying part for us is to assist great ideas and projects to become reality.”

-A representative from Blockground Capital, a firm that invested in Codex, Endor, Eden, and Open Platform.

Additionally, projects that are actually looking to build a business are able to offer their investors higher degrees of partnership and collaboration. Early-stage firms can then utilize their vast networks to help take that project closer to its goals.

How is this useful to me?: If you’re looking at early stage projects, you should be looking at the team, strategic partnerships, product development progress, roadmap, and use any significant external investment as a signal to a project’s efficacy.

Market-based insights: Be Wary of Artificial Walls

One of the dirtier tricks in whale and large-scale investment theory is market manipulation. This differs greatly from funds/firms that focus solely on investing in projects, as it also significantly impacts them.

Price wall

Artificial buy and sell walls designed to pump and dump tokens. Investors with significant capital are able to build buy and sell to manipulate market psychology into getting comfortable at a certain price point and enhancing their positions, only to cancel that large buy or sell order and rake in the profits.

How is this useful to me?: Real buy and sell walls exist, but you always need to be vigilant to not get played a fool.

Final Thoughts: What to Expect

With over 167 crypto hedge funds started in 2017 (18 of which closed in 2018), we’ll continue to see an increasing number of pools moving into the crypto market.

The cryptocurrency market we see in 2019 may be a completely different beast if there is a substantial increase in volume. While the vast majority of sources indicate there will be, there are still some difficulties posted.

On one hand, a Wall Street Journal sampling of 24 funds found an average yield of 3,000% in 2017 – just 2,991.3% higher than the traditional hedge fund return. Keep in mind it only takes a single drop of blood to attract a frenzy of sharks.

On the other hand, the relatively bearish 2018 put a wet blanket over any excessive enthusiasm.

“While the softer prices of crypto assets does create a more difficult environment for investors, I do not think it will pause the influx of fund and other financial institutions building products in the space.”

-Lex Sokolin, a partner at Autonomous Next, an independent research provider that focuses on the financial sector.

That hasn’t necessarily slowed down innovation in the space, just poses a factor worth mentioning that could slow down a rapid onboarding of external capital.

“More volume will result in more stability and less volatility. This could open doors for additional investors which didn’t like the high volatility of the market, hence making it more stable and secure. Also, further institutional involvement can increase the reputation, help legitimize the crypto market even further and get rid of the old shady aspects. Overall, institutional involvement will be highly positive long-term.”

-A representative from Blockground Capital.

Ultimately, the increase in volume will lead to less volatility. Until then, we’ll keep seeing the occasional spikes in mid to low-level projects.

As always, I encourage you to always do your own research. However, it’s important to note that doing your own research involves having a fundamental understanding of the psychology and operations of markets to really see through the muck.

Featured image courtesy of Shutterstock. 

Alex Moskov is a writer and entrepreneur with a passion for building and creating awesome things. Alex has experience in music tech startups, digital marketing, and cryptocurrency investing.