You’re Too Focused on Bitcoin When Looking Further Out on the Risk Curve Is Where You’ll Gain the Advantage.

Everything changed once I stopped treating my investments like a sports team.

There’s no such thing as a free lunch.

In 2017, when I first bought Ethereum, there was no telling if the use case of smart contracts would play out.

I took a chance and bought ETH at $80, which was a good bet.

Since that first big win, I’ve often had this open mind to new things and avoided the tribalism that Crypto brings by having a nibble at new echo systems.

At times, it can be a dilemma.

You either decide to take a chance on something earlier and risk having cake on your face like many I see diving into NFT projects — including myself.

Or you arrive late to the party and compete for the carcass left at the buffet table. Everything comes at a cost.

There’s now an emerging pattern.

When people in Bitcoin make a profit, and their risk appetite grows, they use that “house money” on less liquid smaller-cap Cryptocurrencies.

This rotation trickles down into Ethereum, Solana and smaller caps until the market hysteria blows everyone up.

Bitcoin is a behemoth — I’m a great fan of it as a significant store of value, but if you’re one of the little guys investing small amounts, you’ll have to wait a considerable amount of time to get escape velocity.

It makes little sense why I would have an entire bag of BTC when those funds rotate out into Ethereum, which is less liquid and has a higher upside.

People get defensive about this comment because they treat their Crypto like a religion.

It’s not that deep.

There was a time when BTC was the new kid on the block, and we gave it a shot. People are getting smarter and looking further down the risk curve for these opportunities.

Thriving communities are adopting Ethereum and Solana.

Metcalf’s Law shows that Networks become more powerful as more people join. Those who become part of these networks become the most prominent supporters and promoters.

Tyler Winklevoss once said, “You should look at Cryptocurrency almost as you would value Facebook in its early inception.”

The value is the people using the network.

He explains that the robust part of cryptocurrencies is that users become the most significant fans and fight off other ideas like tribalism.

And they’re doing it with BTC, ETH and SOL.

Tyler Winklevoss — Source

“Google took a run at social media, It was called Buzz, and it fell flat on its face.

Social Media platforms not only require network effects, but the users become the most prominent champions of the platform.

They don’t want to leave because nobody wants to upload their pictures ten times on ten different networks.

When you realise that money is the greatest social network of all — and Bitcoin is the first internet money, it’s the greatest social network of all.”

Metcalf’s Law is like saying the more friends you have on social media, the more useful it becomes. So, the value proposition isn’t the tech of the Instagram app — it’s the network of people using it.

This same effect happens in Crypto.

As more people use certain crypto echo systems, it becomes more valuable and practical for everyone in the network.

This was an aha moment on my journey and a shield from the Bitcoin-only crowd.

A clear indicator to keep an eye out for is network adoption. It sits at the top of the totem pole above the use cases of the technology itself.

With its current market cap, Raoul Pal, a macroeconomic wizard, says BTC is a suboptimal bet.

Pal says the ETF market reaction is similar to how you’d expect an initial public offering (IPO) of stock to play out, drawing on his experience from Goldman Sachs.

“What you found is after an IPO, it would launch, and it would be choppy as hell for a while. Sometimes, it would sell off quite sharply. Facebook sold off really sharply as people took profits, repositioned.”

We are seeing people who have been front-running the Bitcoin ETF taking profits off the table, and the same is expected to happen for an ETH ETF.

My Twitter feed went into a frenzy when Larry Fink, the CEO of BlackRock, a company with a track record of 575 approved ETFs and only one rejection, commented, “I see value in the Ethereum ETF. These are steps towards tokenisation.”

Eric Balchunas, the senior ETF analyst at Bloomberg, says there’s a 70% chance of spot Ethereum approval.

“BlackRock filed its ETH ETF application in Nov 2023, and while that is a lot less certain than the numerous BTC ETF applications that were just approved, the potential is huge, as it would mark the first such product for ETH, which already has a large appeal with institutional investors.”

Given the recent price action, it appears investors are moving further down the risk curve in the knowledge that funds could start rotating out into Ethereum in an attempt to front-run the ETF news.

An Ethereum ETF is a way to invest in Ethereum, like buying stocks, without needing to manage the cryptocurrency directly. It’s like a fund that tracks the value of Ethereum and can be traded on stock exchanges.

Typically, Bitcoin reaches all-time highs within 12 months post-halving, an event scheduled for April this year. With funds moving, smaller caps are poised for substantial growth, already evident in the past year.

Solana has soared 384%, Ethereum 105%, and Bitcoin, the most watched, is up 63%.

Pal believes the people who front-run the Bitcoin ETF news will now unwind and rotate into Ethereum as the next news event in Crypto.

“They think rightly that eth is the most likely candidate for the next ETF, and if Bitcoin went up 100% because of this ETF, eth will go up 300% because it’s less liquid, but the same amount of money rotates in.”

Final Thoughts.

I like to have exposure to a basket of the top three Cryptocurrencies.

10% of my portfolio I throw at the wall for complete guesswork and degenerate gambling.

I’m happier taking more significant swings at ETH and SOL because their market caps are smaller, their echo systems are robust, and, let’s face it, half-measures won’t get you pregnant.

Less capital inflow is required to impact your percentage increase with ETH and SOL significantly.

It’s why I’m not majorly focused on Bitcoin at the moment.

I aim for simplicity, focusing on the higher likelihood of ETH and SOL doubling in price based on probability and market cap size.

All I ask myself is, what is more likely, SOL getting to $86B market cap or BTC getting to $1.6T?

• BTC market cap is — $839.81B USD
• ETH market cap is — $304.67B USD
• SOL market cap is — $43,236B USD

Here’s the kicker.

When the leg up of profits is made in smaller caps, I can protect myself against the potential of value destruction by reinvesting it back into BTC.

Others are playing it wildly differently.

We’re seeing people move out of alts into more expressive and higher-risk assets like NFTs, which have an art later and have become an online tool for social signalling.

My only view is to be open-minded to what’s on the horizon while making concentrated bets on assets with network effects and not overextending myself.

I hope this helps you.

Exciting times are ahead.

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This article is for informational purposes only — it should not be considered financial, tax or legal advice. You can consult a financial professional before making any significant financial decisions.