The Perfect Crypto Investment

By Steve Hodl | My Path To Fire | 20 Apr 2022

We have all heard the stories of particular crypto coins with a certain use-case mooning.

This would be our ideal crypto investment, find this token and invest hard. You can then be a god to your mates in the pub when you tell them why you quit your job.

But how do you identify the perfect crypto investment?

What does it look like?

The ideal investment in any category is one with a limited downside (loss possibility) but with practically unlimited upside potential. These are the proverbial 100 or 1000 to 1 bagger.

This means that the worst possible scenario would be that you could lose your investment, but the return could be between 100 - 1000 times your investment amount. So a €1000 investment would become €100k or €1m.

We all know that web3 is going to be the future and will transform literally every industry, but setting up a new token and a reward pool isn't enough to guarantee a successful investment.

In pre-IPO investing, to get 10-100 multiple returns on your investment usually requires a number of years with no returns and a lot of patience. This type of investing is best suited to those with knowledge on how to evaluate company business models and people.

Is this similar to investing in different crypto projects?

The other thing to consider is, that when people are investing in many startup businesses, they usually invest in a basket of companies in order to spread the risk. Startup companies have a very high failure rate.

This could mean that for every 100 to 1 bagger that you invest in, you also have another 50 or so companies that either fail or barely return the original investment. This can have a drastic effect on your overall ROI. Long term when you factor in the many years of no return, the actual returns could be much lower and even in single digits. This is then much less attractive than you think.

Therefore it is not such a simple case of investing €1k in a startup and sitting back and waiting for payday. You need to diversify and this can massively increase the cost of investing. Therefore startup investing is more recommended for those with a larger portfolio and the patience to receive the return.

Investing in new crypto tokens and projects is very similar to a startup and there are many without any proven business uses or cases. Therefore knowing which one is going to provide a massive return is not easy.

The majority of shitcoins have gone to their intrinsic value in the past and therefore you can see the risk of total loss is very real. As most cryptos are highly correlated, the easiest option seems to be to invest in the blue-chip cryptos or a basket of the top cryptos.

If you know a project very well and the team behind it, this could be a good reason to invest in another crypto project.

Thanks for reading.

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Steve Hodl
Steve Hodl

Blogger and Investor

My Path To Fire
My Path To Fire

Personal Finance Blog

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