On-Chain Microcaps

A brief introduction into OCMs, and some of my favourites right now

(Full Disclaimers below. Not financial advice. All content reflects my personal views only - not those of my employer, and is for general information only; They do not constitute endorsement, advice, or guarantees, may include ads or undisclosed positions, and you should consult qualified professionals because all investments carry risk of loss.)

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Alts are dead, long live alts.

Any participant in the digital asset market of the past few months has been greeted with an overwhelming amount of down-only in asset prices (namely, alts) - all while BTC hovers around ATHs.

BTC has been hovering around ATHs, while OTHERS has been making a slow grind downwards.

The alt-coin landscape in crypto is grim. Gone are the days in which crypto participants expect multiples in their gains - these days, most “pumps” are at most 50% moves; which, while respectable, in reality hide the fact that you’d have to hold through a -50% drawdown first - ending up with a -25% from when you first entered.

The cost of capital for investing in alts has thus never been higher. Many alts face systemic problems, and I have narrowed it down to 3 basic criteria that altcoins have to show in order to be considered “a worthy investment”. Sadly, probably <20 altcoins have all 3. They are:

1. Product Market Fit: A business that is revenue generating, shows growth, and is ideally something high growth

2. Alignment with token holders: Buybacks are the current way to show this - but buybacks, unless done with huge size, is ultimately “useless” - the crux here is but the message that is being sent ;

3. No supply overhang: Many altcoins face immense unlocks - and combined with reason (1), most altcoins with a lack of product face an issue where there is virtually no buyers for their tokens - see: ETH L2s as an example.

The reality is, many tokens don’t even hit 2/3 of this. And what you get is a sea of tokens that look like this:

Add to the fact that investing in alts is often extremely path dependent, and that path can often take you through a boat load of volatility. Imagine buying a token at what you think is a fair price, just for it to -50%, before going back to break-even again. Case in point - Hyperliquid’s HYPE:

To add salt on the wound, Hyperliquid’s considered one of the best tokens out there right now that fulfill all 3 points (hence its ability to break prior ATHs) - in many other tokens, the path dependency ends after the -40% move down, where you wait for the next 20% altcoin pump before exiting your position:

Most altcoins look like this. And if you think you can bottom tick this - well, if price capitulation doesn’t kill you, time capitulation will

It’s why everyone is saying that it’s a “traders market” right now - which is very much true. Liquid investing is some of the hardest its been since I’ve joined the space - any thesis that you pitch, can go -50% first (even if it’s a tier 1 asset) ; and the total number of coins that satisfy all 3 criterias can be counted on one hand.

Why On-Chain Microcaps