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It has been several months now since I last published an Ask Me Anything and much has happened in the space since. As such, please find below the answers to 10 questions I was recently asked on Twitter:
1. Most of the steps people follow for DYOR (Do Your Own Research) in crypto can easily be faked; like a nice website, Github activity etc. Do you think that – with the market getting more mature – we need better standards to set for fundamental analysis and DYOR?
I tend not to look at things like Github activity, though I do look at the quality of a website, as I believe that a high-quality homepage is a prerequisite for a worthwhile project. Nonetheless, I agree this can be misleading too. To be honest, all surface-level fundamental analysis leaves you vulnerable, but this is often the approach taken by speculators, as it takes less time and far less effort than deep research. I believe DYOR remains a fundamental component of investing in crypto, but the research must be more intelligent.
For those that would like a step-by-step breakdown of the criteria I look for when researching new altcoins, I wrote a free ebook on it, which you receive for signing up to my mailing list or can find online at Medium. Further to this, my Coin Reports detail my entire research process for projects. You could quite easily take those as a template for your own research.
2. Nik, could you expand your view on rich lists?
Sure. I believe that rich-lists are the most insightful yet least utilised analysis tool available to us. It is a form of analysis made possible by the transparency of (most) blockchains, allowing any individual to monitor and evaluate the movements of supply of any given coin in (effectively) real-time at zero cost. In this process, we are able to determine not only the position sizes of the largest holders but also the activity of these holders over any given period, thus we can determine patterns of accumulation or distribution via net inflows and outflows.
Put simply, the rich-list allows us to be a fly on the wall of so-called smart money. Those that expend vast resources (both, time and capital) on accumulating a significant percentage of the supply of an altcoin do so because they either expect significant price appreciation to make their efforts worthwhile, or, more notoriously, are intending to use their control of supply to manipulate price to their advantage. Either way, if we can learn to spot these patterns, we can make more effective decisions on entries and exits for our own positions.
The approach for this is very simple though can be time-consuming: all one has to do is find the rich-list for the altcoin you’re interested in (note: some may not have rich-lists due to inherent privacy features) and note down information on all of the largest addresses. I tend to do this for the top 20 addresses, excluding exchange or team-owned addresses. The information that you want to know is the current date and time, the balances of each address and the past 30-day activity (or pick a period you feel comfortable with; the longer, the more information you have). You’ll also want to know which addresses have been inactive for prolonged periods, as these suggest neither accumulation nor distribution is occurring by these particular holders. Following this, I simply repeat the process at specified intervals (often every few days), noting down all the aforementioned details and highlighting any changes.
In short, what you’re looking for when considering entering a new position is for the majority of the largest holders to be accumulating at current prices, thus their balances are increasing. If the majority are distributing, you should reconsider your initial suppositions.
I wrote a case-study on rich-list analysis a year ago that, though out-dated now, documents this process in its entirety. You can find that here.
3. When you’re watching a chart for a setup, how frequently do you revisit it (and potentially re-chart it) to take into account any changes in the market?
I think this is largely dependent upon the time-frame you are basing your trade on; for example, if I’m taking a trade based on analysis made on the Daily time-frame, I won’t revisit it very frequently because the intraday movements are largely irrelevant.
That said, as one must take new information into consideration when trading and react accordingly, I tend to reassess based off of price alarms, which I set at various invalidation points for my idea; for example, if price starts to move away significantly before reaching an area I had marked out for a potential entry, thus triggering an alarm, I must reevaluate whether the trade idea is valid anymore. More often than not, the trade idea is then invalidated and I take no trade, as re-charting the setup immediately can often be a symptom of feeling as though you missed out and now need to find a new trade. I prefer to wait it out and look for new setups elsewhere.
I think the most important thing here is to know your trade invalidation points; those are more significant than simply revisiting and re-charting a setup based on any price movements; most price-action on lower time-frames is noise, anyhow, and spending too much time focusing on these movements can confuse otherwise clear analysis.
4. What has changed in this space since you published your book? What concepts/strategies/techniques you mentioned aren’t relevant anymore?
I feel that a lot has changed over the past 12 months since publication (though the book will be more out-dated than that given that I finished writing it a couple of months prior); however, much has also remained the same.
One of the primary things I’ve noticed is – and I expect this is due to the severity of the current altcoin bear market – that more value is being placed by the market on fundamentals, as the growth rate of the creation of new projects has become exponential. Whilst the vast majority of altcoins remain firmly in their respective bear markets, projects that have garnered real-world traction or are showing relatively significant on-chain demand have recently outperformed Bitcoin, despite Bitcoin’s 300% rally in several months. Thus, my own approach has moved further and further towards deep fundamental research, coupled with attractive technicals, where, in the past, the reverse was true. This is made evident by the 5,000-6,000-word Coin Reports I publish here.
Further, my own approach has evolved with regards to my filtering criteria, the metrics I utilise and, most significantly, my disregard for the vast majority of lowcaps and microcap projects, given how I emphasised their speculative purpose in the book.
The fact is that, following the second-deepest altcoin bear market of all time, almost all projects have fallen 95% or more against Bitcoin, thus the differences in upside are negligible between midcaps and lowcaps/microcaps; the primary difference being that many midcaps have greater fundamental quality than many of the smaller projects, plus have longevity through the funding acquired for growth. Thus, risk/reward, which was once skewed in favour of lowcaps, is now in favour of midcaps and even some largecaps. My own approach and portfolio has reflected this shift.
Also, several exchanges mentioned in the book are no longer reliable or are now defunct; this certainly needs revising, as does my approach to market cycles, which has evolved to include ALT/USD pairings, ALT/ETH pairings, Buy Markets Percentage, BTC Dominance, Search Trends and other tools, which I do not mention in the book.
Overall, I believe my approach now is far more cohesive and fundamentally sound than it was 18 months ago.
I am planning on revising the book, given how fast this space evolves and the breadth and depth of changes that have taken the place. I hope to begin writing in September.
5. Will there ever be an altseason again ? Most OGs are claiming there won’t be – what’s your opinion?
This is a question that is seemingly on everyone’s minds, and yet I think that most have a very short-term memory, as the same was said in the winter months of 2017, following the outperformance of altcoins in Q2 2017 and the subsequent Bitcoin rally to $20,000 that sent the very same alts tumbling. At that time, the same sentiment echoed: Bitcoin will suck the capital out of the altcoin market, leaving everything else worthless. Then we got January 2018.
Further, my thesis on this is very simple, as I have outlined on Twitter previously: altcoins are indisputably the cheapest form of leverage, and human greed is perpetual, infinite and non-selective. Until this changes, I believe there will be a speculative market for altcoins.
That said, I do not believe it will occur in the same fashion as that of 2017/18, where literally everything pumped to new all-time highs against Bitcoin: instead, I believe we will see that kind of outperformance from newer projects that have yet to experience a full market cycle, as well as from the most fundamentally sound altcoins (QNT, FTM, V-ID, KMD etc.); we will see adequate outperformance but no new ALT/BTC all-time highs from projects with fundamental quality but that experienced immense speculative bubbles in their previous cycles (STRAT, ARK, ARDR etc.); and we will see weak returns from projects with no fundamental quality that have experienced several market cycles already (which is the majority), with liquidity from those markets moving to greener pastures.
6. If altseason happens, do you expect it to come after a new all-time high on BTC?
I expect it to come before, to be honest, because of where we are in the ALT/BTC and ALT/USD cycles relative to where we are in the BTC/USD cycle, as I’ve often depicted on Twitter. The reason for this is because, following a new all-time high in BTC, the rate of increase would likely be steepening rather than steadying out, as price begins to climb to a new euphoria.
Such volatility destroyed ALT/BTC valuations in July-December 2017, prior to Bitcoin’s peak, with the altcoin market declining 69% against Bitcoin. Since the all-time high set for ALT/BTC valuations in January 2018, the market has already fallen 75%; the second-deepest bear market of all time for altcoins (though effectively the deepest given how liquid this market is compared to 2013/14). In consequence, Bitcoin dominance is at the highest since December 8th, 2017, when the all-time high of $20,000 was set.
I am expecting Bitcoin to have a period of respite, losing market share to altcoins over the next 3-4 months, as market participants look to the cheapest form of leverage to multiply their BTC whilst Bitcoin dominance is at historical ‘resistance’. This will give Bitcoin the fuel to break new all-time highs and regain dominance by 2020.
7. Do you think Quant Network will live up to the hype and expectations of their projection and end up in the top 10 coins on Coinmarketcap?
The top 10 is a completely arbitrary position, given how market-caps can be manipulated. That said, given the research I did on Quant Network, I do believe that it possesses solid fundamentals and impressive real-world use-cases; traits that I believe are far more highly-valued now than in previous cycles. As such, at the peak euphoria of its first major market cycle, I don’t see why it wouldn’t be valued at $2bn+, though I doubt this peak would hold for a sustained period; at least not based off of one market cycle.
8. Are you holding QNT? What do you expect for the supposed exchange listing?
9. Have you bought your CHX position already? I believe the bottom is in with the Decentralized Stock Exchange news. How hard do we moon?
I have not yet bought a position, though I am keeping my eye on it now, as I also believe it has bottomed out. However, re-accumulation can take some time, and in current market conditions I would rather not jump the gun. I have depicted what I would like to see occur before I enter a position in the chart below: ideally, we spend some more time in this current range below support turned resistance at 1500 satoshis. Once this level is flipped on solid volume, I’d like to buy the retest as a level of reclaimed support, and I will hold my position cyclically. How great the returns are of the following market cycle depends on the present market conditions and the exchanges Own is listed on when it hits its next peak euphoria.
10. What are your top 5 altcoins for the coming year?
I get asked this question perhaps more than any other, and whilst I don’t like to give out direct coin picks, I do believe there would be some value in me detailing the reasoning behind my choices for which altcoins I expect to outperform Bitcoin over the next 12 months. I am currently writing up a blog post dedicated to this, which I expect will be out early next week.
And that concludes this Ask Me Anything. If you have any further questions, feel free to leave them below, and let me know if you’d like me to do more of these.