Eyes of Laura Mars. You remember that—a movie from 1978?
I do. Not that I can tell you what the storyline was about. Just that it was the first thing that popped up on my family’s television on that day in 1979 when Cablevision of Baton Rouge completely rearranged my world. No longer was I stuck with three network channels and a crappy UHF channel showing useless community-access programming. Now…
Now I had the whole world!
I had choices.
The arrival of cable TV fundamentally changed entertainment. CBS, NBC, ABC morphed into hundreds, maybe even more than 1,000 networks we can now access. Throw in all the online media—YouTube, Netflix, et al.—and access to all the foreign programming we can reach on the internet and, well, the entertainment possibilities are uncountable (though, I can still never find anything I want to watch).
That, in a roundabout way, gets to my point today…something called “alt-coins.”
I’m betting you’ve heard that term somewhere when reading about or listening to commentary on the cryptoconomy.
In the world of crypto, there’s bitcoin, there’s Ethereum…and then there are the multiple thousands of other cryptocurrencies, many with whimsical names like PancakeBunny, Polkadot, and SushiSwap (technically, Ethereum is an alt-coin too, but that’s not really important for this dispatch).
It’s these altcoins that have literally been minting millionaires over the last year or so. I mean, you could have spent $5.80 on PancakeSwap last November when it was trading at $0.25 per coin and you’d have crossed $1 million by May. Or imagine spending all of $200 in August 2017 to buy a little-known coin called Binance Coin, which runs the Binance crypto exchange. At the peak of the market this past May, you’d have had $1.35 million.
Given the returns that have occurred with alt-coins, I thought I would tell you a bit about them today, and explain why they will continue to mint millionaires going forward.
First, a couple of quick caveats: the names I mention are not recommendations. This is a volatile and risky space; you have to accept that to invest here. Second, the so-called “meme coins” you might have heard about like Dogecoin or pretty much anything else named after a dog or cat are trash coins. They soar and sink on sentiment, manipulation, and the ever-changing whimsy of millennial and Gen Z day-traders. They serve no fundamental purpose.
And that—fundamental purpose—is what I care about when it comes to investing in any asset.
Why does any investor own Amazon?
The company provides a service that the world wants and uses. And because the world wants and uses Amazon’s services, Amazon earns a profit, which then reflects in the price of Amazon’s stock. It’s a very simple A + B = C progression.
The progression is the same with particular alt-coins, though the mechanisms look different.
I’ll use two alt-coins as my examples: Polkadot and VeChain.
I’ve chosen those two because one is a network; the other is a service. Together, they represent the core of the alt-coin universe. Today, I’m writing about Polkadot; tomorrow’s dispatch is about VeChain.
Polkadot (DOT) is a network, not unlike NBC or CBS. It allows any number of cryptocurrency firms to provide any number of services to consumers, businesses, industries, and governments.
Think of it this way: When you plop onto the couch at night, you don’t think “Hmmmm, I guess I’ll watch NBC tonight.” No, you’re tuning in—without thinking about the network—so that you can watch Blacklist or, maybe, Keeping Up with the Kardashians. You are “show specific/network agnostic.”
But the network is crucial to your choice because it’s the pipeline that brings you the service you want.
It’s the same in the cryptoconomy. Different services operate on different networks.
The primary networks you want to keep an eye on are: Ethereum (ETH), Polkadot (DOT), Cardano (ADA), Solana (SOL), and Ripple (XRP). There are others, but those are the big and big-ish kahunas that stand apart.
We’re still very early in the game in that not all networks are fully built out, even though their cryptocurrencies are already available to own. As they bring their networks online, they will see a rush of service providers launching their services, and that’s where the real growth will take place.
Which gets us to the big question: How does a network alt-coin like DOT increase in value?
Well, with DOT, companies that want to build services on the Polkadot network have to “bond” Polkadot tokens to effectively lease space on the network. That is, they have to buy tokens and then lock them up. I’ve seen various estimates, but essentially companies will have to own millions of DOT—of the roughly 1 billion that exist—to secure their lease.
As demand for space on the DOT network grows, the value of the tokens will go up as more and more service providers try and grab some of the unbonded ones.
Functionally, then, what DOT does is no different than what Amazon does: Provide a service; see demand for the service increase; watch the value of the tokens rise.
It’s the same A + B = C process, even though there are no corporate profits or quarterly earnings reports or whatnot.
From an investor’s perspective, DOT serves a fundamental purpose. Its network has utility, and that is what will drive its price over time.
Again, the volatility is going to be crazy. And if that’s too much for you to stomach, then I really urge you to avoid any crypto other than stablecoins. (See the July issue of the Global Intelligence Letter to learn how to earn up to 12.68% annual interest on your idle cash with low-risk dollar-based stablecoins.)
Tomorrow, we’ll talk about what a service on a cryptocurrency network looks like through the example of VeChain.