There’s a “sweet spot” in investing in crypto assets… I’m talking less about bitcoin, but more about some of the other, smaller cryptos.
This spot is where the initial hype around a crypto’s initial coin offering (ICO) has worn off… but the big gains are still to come. (An ICO, or “intial coin offering” is when a token is sold into the market in exchange for crypto capital, usually bitcoin or ethereum.)
How to find the “sweet spot”…
The “J-Curve” is applicable across a range of disciplines, from economics and private equity to political science, as a means of correlating the level of a country’s stability and openness.
It can also be applied to the crypto asset investment process as a means of identifying potentially undervalued cryptos that have the potential to deliver huge gains.
Let me walk you through it using the chart below, which is broken down into three stages:
Stage 1: The ICO
Cryptos come to market typically with the goal of raising money quickly, and usually with as much fanfare as possible. It’s analogous to an initial public offering (IPO) in the stock market, although not a perfect one.
There’s a lot of hype at this stage of the process. Maybe some celebrities get involved. Short-term speculators pile in to buy tokens on launch looking for a quick-flip.
But the tokens at this stage don’t have any utility. Or they don’t have much circulation or real use application if they are a currency token rather than a utility one.
The underlying value proposition or product that the company is raising money for hasn’t been built yet.
So we often see a short-term spike in speculative activity, followed by a correction.
Stage 2: The doldrums
The doldrums is a colloquial maritime expression, describing parts of the Atlantic and Pacific Oceans affected by low pressure around the equator.
Whilst these areas can host squalls and thunderstorms, there are often long calm periods where there is no wind whatsoever for weeks on end.
That’s often what happens in Stage 2.
The initial ICO and post-ICO hype and media coverage has subsided. The speculators have come and gone. The developers are hard at work (we hope). And the project has several months, or even a year, before it goes live.
The price reflects the lack of interest from speculators. There’s not much “buzz” yet. That will come later if and when a viable product is launched. But for now all is quiet.
As an investor, this is an ideal time to strike. It’s the “sweet spot”.
Stage 3: The launch
With time, the project will get closer to hitting key milestones and the launch of their crypto, be it a currency, a protocol or an enterprise.
As we start to approach that territory, we see interest in the project build again, and the price reflects that.
There’s a world of difference between buying a token for a project that goes live in a week versus six months.
I hope it’s clear where we want to be buying: Stage 2, when a project is under the radar. It’s “unloved” by the speculators. It’s not appearing on the news and blogs because there’s not much to report other than that the team is building.
I recently recommended Stage 2 crypto assets in my Crypto Capital newsletter.
They may have a few more months left in the trough of the J-curve, but if they move into Stage 3 as I believe they will, then I’d expect to see prices move higher, and fast.
It’s worth repeating that cryptos are the most volatile asset class on earth. I mean, one of these Stage 2 recommendations is up 100 percent already, although I think we have a few more months in the trough of the J-curve before it really starts to move and the train finally leaves the station.
Good investing,