At the end of December 2017, the price of CCC was $3.1872, representing an increase of 110% over the previous month.
We believe tokens for application projects are overvalued after the run up in the past few weeks.
For example, Status’ market cap is $1.5 billion while Request’s market cap is $500 million. This is a very lofty valuation for a product that’s not even launched. We believe that the market is pricing in perfect execution by the team, and guaranteed traction and success when the app rolls out, which is far from certain.
Startups have a failure rate of 90%, but it seems that the market is currently pricing in a failure rate that’s far below 90%.
This kind of price growth is certainly not sustainable. For Status to double again, it would have a market cap of $3 billion. We are not bashing Status – it is fundamentally a good project but we believe there is a disconnect between the valuation and current development progress.
In light of the current market condition, we are shifting tokens towards platform/protocol instead of applications. Because different applications can be built on top of a protocol, we believe the potential upside from platform/protocol ideas are generally higher. We will add application ideas only if we believe they are undervalued and poised to breakout.
Active vs. Passive Management
We note that the community has pointed out that some DAAs have the name “Index” but they are not passively managed. They are right – from what we see, all the DAAs are actively managed in that the manager picks the coins that they want to include in the portfolio. The allocation into the portfolio is also arbitrary as well.
We believe that in the cryptocurrency market, active management beats passive management since it is such a new and immature market. Prices move irrationally and are often driven by FOMO, FUD, rumors, pumps, etc. In a market like this, we believe investors have an advantage by staying on top of the market.
It was a great month for the crypto market in December. Lots of coins went up 2x or more and Bitcoin underperformed the market.
Qtum was shooting up in early December and went from $13 to $50 within 3 weeks, hitting our price target. We switched it out ahead of schedule and switched into Bitcoin Cash.
We got lucky with the timing – Bitcoin Cash was added to Coinbase one day after it is included in CCC. We see Bitcoin Cash as a hedge for Bitcoin as the two coins often move in different direction.
We held on the other coins throughout the month. Performance of those coins ranged from 33% (Dash) to 201% (Steem).
It was a great month for tokens. The tokens in the portfolio generated returns ranging from 79% (WeTrust) to 375% (0x) with an average of 207%. We really cannot complain about the performance of the tokens.
Like we mentioned in the beginning of the article, this bull market caused many tokens to be overvalued in our view.
It is difficult to call the top, but we are actively reducing the risk of the portfolio by swapping tokens that we believe are more reasonably valued. Therefore, we added Raiden and Everex in the portfolio.
We replaced Qtum with Bitcoin Cash as discussed in the previous section.
We removed District0x and WeTrust, and added Everex and Raiden as we believe the new additions are more relatively undervalued:
- Raiden (RDN), being one of the major scaling solutions for Ethereum, has enormous potential.
- Everex (EVX) is a sleeper that we believe will perform extraordinary well when the market takes notice of it.
* The information contained in this article is for education purpose only and not financial advice. Do your own research before making any investment decisions.