Planning For The Crypto Price Recovery

If the title seems a bit disingenuous, my apologies.  We have just finished the worst three months of crypto pricing in the history of mankind (no hyperbole needed).  What appeared as capitulation last week was followed by further selling right up to the end of the first quarter. It has been a humbling experience.

It is safe to speculate that more investors are asking the question: when will the selling end rather than how can I position for the inevitable recovery of prices? It is important to focus on the word inevitable because that belief is what got us here in the first place. Yes, prices will recover because of crypto’s underlying power to make change in our world.

So the better question should be: how to develop a strategy for that time?  Chances are unless you got started late in 2017, you probably were drawn to one or more of the thousands of ICOs; sometimes doing your own homework, sometimes getting your information from a publication like

Either way, you were probably attracted by the outsized returns investors were getting.  In other words, your motive was purely making money, neither the business model or the prospects of long term success was the overriding issue.  Totally understandable; there are so many ICOs to choose from and reading white papers can be a confusing, somnia inducing experience.

Reviewing Your Crypto Portfolio

Perhaps your crypto portfolio consists of one or two of the big names and a smattering of ICOs.  What you will notice is that as poorly as bitcoin, Ethereum, Ripple and Litecoin have performed, in all probability the ICOs fared much worse.  Applying common sense would lead you to conclude that you should adjust your portfolio in favor of those beaten down ICOs. After all, aren’t they the cheapest and thus the best value.

Before making that move, consider the report from Deloitte Insights issued around the heights of the crypto price cycle.  If we could have applied the information back then, we could have saved some coin.

The report is titled Evolution of blockchain technology.  The reports focus in not exclusively on ICOs.  Rather it is on a total of over 86,000 blockchain projects over the course of nearly a decade.  

There are some interesting data points in the report that verify some of the things we have suspected all along.  Each year since 2009 there have been over 8,600 projects started on average, skyrocketing to over 26,000 by 2016.

Here is the more important data point; only 5% of these projects survived.  The average lifespan was less than 15 months. There is a message here for investors. In 95% of the ICOs from 2017,  before price levels recover for cryptocurrency in general, you chosen ICO may be out of existence.

Corroborating The Findings

The Deloitte report has been billed as the first empirical attempt to understand the evolution of blockchain.  For ICO investors this confirms that there is little difference in the success of fledgling blockchain projects from that of more advanced venture capital stage companies.

What it reminds us is that ICOs are a great place for risk capital but the risks multiply when investors overstay their welcome.  

In the world of stocks, after a prolonged bear market, the standard off the shelf advice is to buy large well capitalized companies because those are the proven companies that will lead the charge.  Over time this has proven to be a winning strategy. Even though it would be a leap of faith to compare crypto names like bitcoin, Ethereum, Ripple or even Litecoin with Dow Jones Blue chip companies, the principal is the same.

As we come to a close on the first quarter of 2018, we can look for better times going forward. Bon chance.

Featured image courtesy of Shutterstock. 

James Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.