Altcoins Questions from Grandpa
By: Gabrial Magni
Tags: Eth, Cryptocurrency Bull Run, Btc, Bull Run, Alt Coins

Altcoins Questions from Grandpa

Grandpa has just started exploring crypto having bought his first bitcoin a few weeks ago.

Today he asked me

‘Hi I got a video that I hoped to send to you discussing the slowness of bitcoin wrt speed of transactions he pointed out visa/master card do 8000/second so btc was becoming more a store of wealth than transational but their were companies writing overlay systems to solve this like Charding, Zilca that he thought could grow very quickly also spoke about oracles that link block chain to real world like Api3 & chain link sounded like being an early adopter could be good have you got thoughts around the potential these support sectors offer`

Yes btc has consistently resisted changes that make it faster and will never reach Maatercard like speess. The coins that tried to compete with btc in 2012 and 2017 have all fallen by the wayside. For now this has allowed us to realise that the biggest narrative that is effecting the most number of people is the fear of a massive collapse of our financial systems. The endless printing of money and the resulting environmental and sociatal disasters from the Fiat experiment is becoming more and more apparent. The bitcoin is a programmable store of value like gold/Land/Bonds/Stocks or rare pieces of art narrative makes most sense given the current macro economis scenario. The pain and costa of Mastercard and PayPal are not creating enough energy for people to jump over the digital divide yet. If you read the bitcoin standard he does an incredible job of analysing btc in this way. So in the short term 1–2 years I am not particularly excited by the payment gateway stuff. I think now that mastercard have moved into crypto and FB soon to follow they will be far more motovated to solve this problem than anyone in the crypto space and they have the networks so it’s gonna be hard to disrupt them.

There are literally hundreds of projects that are trying to do layer 1 protocols that make transactions faster on both etherium and bitcoin as a payment gateway. Choosing who will be successful feels impossible for me as well as trying mediate the risk that FB via WhatsApp or Mastercard Visa solve this faster and bring there network with them makes an inveatment here seem crazy to me given the obvious opportunities that lie in other areas.

In summary I don’t think the exciting narrative at the moment is the payment gateway it is a difficult one with so much resistance from authirities, tax implications and competition.

What is happening instead is that PayPal, apple pay, Square cash and now Visa and Mastercard are developing payment gateways for crypto's. This is easier as Visa/Mastercard already have the network. Also lots of companies doing payroll and other real world solutions. These are interesting in the long term but I don't think these are the big exciting plays this bull run.

The low hanging fruit are the various Defi projects. Decentralised Finance is absolutely essential in the whole programmable money crypto Ecosystem that exists outside of bitcoin at the moment 95 pct on Etherium.

There are 3 main movements going on here

1/ Tokenising real world assets e.g. a crypto company bought a stock exchange in Amsterdam. Blockchain supply chains etc. The idea for a stock exchange is to use tokens and blockchain to tokenised stocks, bonds and other securities, bringing massive efficiencies in proof of ownership, transfer of ownership etc and bringing transparency and decentralisation to all of this. I.e. You own the shares taken in your wallet. I love this all its easy to understand and no double will have some significant investment in 2021 and IMO this is not a major narrative of this 2021 bull run. This feels like it is a longer play (next bull run) so many of the issues currently being worked out in Dex’s see analysis below will make these more mainstream adoption projects easier so I think they are a little premature for now. This is cool many if the premature projects in 2017 managed to earn enough to develop enough that they are now ready for prime time. As an investor I would rather jump on the sectors that are ready to pump now. This does not mean that all this will not get a lot of attention and investment and profits to be had this bull run but will probably only fully blossom in years to come. Dapps running on Etherium (and it’s competitors) is just not useable enough for anyone but the most faithful to use it. Even the faithful like me get eternally frustrated by the usability, performance and costs and if it was not for the chance to invest in coins that are doing 10 X 20 X in months now while most of the market is flat and likely to have gains of 100 to 1000 X for the good ones in 2021 I would not dable in this tech or try to use it. I would certainly not do it for the tiny profits you can make in a stock market.

2/Decentralised Exchanges (Dex’s) in the Crypto world this is a place where you can exchange tokens from one projects to another project. Projects produce an external API called a protocol which is like the membrane of a neuron. To use a protocol you need the coins of that protocols (neurotransmitters etc that fit into the receptor sites for that project) e.g. If you want to take loan out on say UniLend which is written on Etherium then you will have to pay gas fees in Eth the token used for Etherium project. To get Etherium you would need to exchange another token e.g. Bitcoin (btc) to get Eth. You might even need to pay a small amount of fees in UNILEND and you would then need these tokens in your wallet as well.

This world is for me is the low hanging fruit. You have crypto natvies exchanging tokens with other crypto natives. If you imagine a foreign currency exchange market but one where every project has its own currency. I.e. Projects of 10 - 100 developers, validates, seed investors, germinators, influences are rewarded for their effort in the tokens (currency) of that project. To use someone else’s protocol you need to own their token in your wallet so that you can pay each time you use their service. So you would need to exchange your tokens for their tokens at fair value. So basically an automatic decentralised currency market hundreds of times bigger than our current currency markets. These exchanges are also the primary place where investors can buy tokens in a projects they like so basically the exchanges are nodes where huge amounts of information is transferred between the various projects via their tokens and the value of these tokens relative to each other. Because of these tiny token transactions and the continually refinding fair value between the tokens, the system is super robust and responsive to microchanges making it increasingly antifragile and flexible more so than anything that we have seen to date. In a very real way these exchanges reacreate the barter system1 using technology to ensure that everyone can achieve fair value for their real contribution. This makes all the financial systems that were developed to eliminate the barter system by making it more efficient by creating paper IOU’s from a ‘Trusted’ authority which eventually became money as a standardised universal exchange of value less meaningful.

For me this is the obvious place of huge growth in 2021 because the profit margins from investing in these small and medium cap coins is so huge and the service is thus so essential to all participants in the Ecosystem I.e. It’s a place where early investors (private sales like VC’s of old), germinators (launch pads), developers, users and retail investors meet on exchanges and get the coins they need to pay for the things they use.

Because this is a self referencing feedback loop I like it. The better the cheaper the more efficient the Dex’s get the more healthy the Ecosystem becomes and the more valuable the Dex’s become.

The reason for decentralised exchanges vs centralised exchanges is really simple. It is quicker to add new coins to a decentralised exchange than having to go through the approval process of centralised exchanges which may require all sorts of legislative conformance and at the very least require someone employed by the Central exchange to approve the coin to be added to the exchange and then the exchange having to create the liquidity. The KYC processes to use the centralised exchanges add to there slowness and difficulties.

With Dex’s things are different anyone with coins is rewarded for adding their coins to the liquidity pool, anyone with an electronic wallet can use the exchange to swap coins.

So this is the big excitement here people no longer only Hodl their crypto they can now earn yields of 10–15% APY on top of the capital gains. For investors it becomes easier and easier to buy the coins you want in small exciting projects.

Now we look at what is needed for these exchanges to work.

Oracles

For this to work we need Oracles (they bring Data from outside to the project e.g. Who won a sports match and what the score was to a betting site without relying on any authority). The big Oracle the gold standard is ChainLink. It is the grandpa of this space. It is still very down and side from its ATH I have some but just Holding. API3 is exciting it does something very different and I hold a lot as I think it will gain on Chai Link. There is space for many many Oracles each having its own Niche I like ChainLink with already established market dominance its adaptability and speed of developing new oracles as a direct results having a massively decentralised Protocol will eat the lions share. API3 is the only project doing something interestingly different for me. There big difference is that instead of the disorganised self organising basaar of ChainLink which continually reorganising to ensure the exchange of the widest range of information between all the projects we have an orderly organised protocol. This is a protocol whereby the data provider can provide their own data via a well established API and as a result earn tokens whenever their data is. For me API3 is building railway lines along which reliable data from the most valuable data sources can flow fast and efficient. API3 has insurance for the consequences incorrect data encapsulated directly in their protocol.

Insurance

These exchanges need insurance against hacks etc for large number of people to invest. Because of the nature of insurance where insurers reinsurer with each other in a network. Nexus mutual is the big player here. I like Cover an insurance small market cap with a bigger upside than Nexus. All good insurance plays will do well as Defi grows.

Scaling

It is clear that Etherium just simply cannot handle the volume of transactions even as we are now. Gas fees can run from 10 to 60 USD to buy or sell a coin making the entire economy grind to a halt.

The 2 year rollout that Etherium has proposed for Etherium 2.0 is simply not soon enough. Etherium have all the players, all the projects, all the users and all the infrastructure so a Mass abandoning of Etherium to better performing competitors like Cardano etc seems unlikely right now. There are various projects trying to scale Blockchain in general and Etherium in particular. The more time I spend in the etherium Ecosystem the more I invest in various scaling solutions. My favorites that I have bought are PolkaDot $DOT and scale ($SKL) and MATIC.

Usability

This Defi etherium stuff stuff is barely useable by me. You think holding your own keys in a bitcoin wallet is a challenge try staking, or trading on a decentralised exchange.

Strategy

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For me it is essential to have an investment hypothesis and a strategy.

It is essential to understand my Investment hypothesis otherwise anything I say is put if context.

I believe bitcoin is the ultimate scarce asset with a fair value for its scarcity of 100 000 USD at the end of this bull run and a fair value of 1 million after 2024 bull run. I believe that this is on the downside as it only looks at btc as a store of value like gold or land and ingores the programmability of crypto currencies and the incredible things that can be done with it that gold or land can never have. So I expect metcalfs law of the exponential increase in the value of a network as it is adopted. This is the law that drives silocon Valley investments and leads to the now famous hockey stick growth as the network goes viral.

From all of the above you can tell that my overidding question is how can I own more bitcoin. What do I need to do to Increase my bitcoin holdings and earning Fiat and blindly HODLing btc is simply not good enough for me.

Since I have a big HODL pouch of bitcoin the first most obvious question is know how to predict those stomach churning corrections we have experiences e.g. 2018 btc falling from 20 000 to 3000. I will be selling large buckets of my btc when the top signals come in probably end 2021 early 2022 and buying again mid late 2022 when the price has retraced. I do not trade in bitcoin on a short term as it feels more predictable and less effort and stress for me to trade in microcap with my Software dev, business analyst and startup investor skills to invest in Alts and use the profits to buy more bitcoin is easier than to try trade bitcoin to buy more bitcoin.

So what am I doing now

In the current market the small cap Alts are pumping returns of 2–5 x’s are common. I am actively pursuing projects here that are tackling problems that I am facing. I am investing in them early and taking out my investment and some profits storing the rest safely in my pouch waiting for the bulls to really run. I am putting the origional investment back into Btc slowly increasingy btc HODL pouch and I’m HODLing these microcapa so that whwn the big bull runs a fair portion of these pouches of coins should fruit with 20 - 100 X gains. I hope that one or 2 will do the 1000 Xs we saw in the lats of 2017.

So in summary the initial investments that I take out are used to increase my HODL position of bitcoin.

The profits I take out I use to buy more Micro caps and occasionally buy a little DOT, LINK or Ether for my pouch so that I am slowly storing some of these more certain projects when the bull runs.

E.g. I only have a small amount of DOT as DOT has already pumped and I am instead investing in the smaller projects which are still mooning right now. As I said I will keep doing this until the bull run really gets going (We break out of 20 000 USD/btc range and we leave 20 000 behind fir good) probably Feb next year. When this happens I will return some money from my trading back into the bigger alts Eth, ChainLink and Dot. This feels safer as no one can really tell me what is really going on under the engine of etherium. More information on how these projects and Etherium. are working and evolving will be available in the months to come and hence I can make better decisions later. The prices are sideways or down and sideways to btc ATM so the opportunity cost of waiting is close to zero. These large market cap projects will not 100 X overnight so we will have plenty of signals to qmkve in when the time is right. For this reason while I believe in many of these projects and want to have a pouch full of them when the bull runs while their prices are moving sideways to btc I see no reason to hold any reasonable amounts of these bigger market Caps I put Eth, DOT, LINK, Nexus MUTUAL in this category. No reason to expose myself to their risk when I could just hold btc at a much lower risk.

So Granpa this is my strategy so far it has been working wonders.

In answer to your question I don’t think the crypto payment narrative is going to be the biggest story of 2022 so I am not investing in any of these.

I do think Defi will be and as such I expect Insurance and Oracles to absolutely blossom in 2022.

Scaling will be huge but no one knows which of the various solutions will work or which combination will work. So we know the scaling sector will boom but there are no large caps that have established their technical, tokenomics and network supremacy yet even the mighty DOT is still untested in this area.

So the clear winners for large caps at the moment are Nexus MUTUAL and LINK.