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The Cryptocurrency Squid Game Continues
On Tuesday, Pancake Games (CCC:GCAKE-USD), Tiger King (CCC:TKING-USD) and Pawthereum (CCC:PAWTH-USD) collectively lost 55% of their value.
The common thread? These (mostly) zero-value tokens are much like a massive version of Netflix’s hit show Squid Game. Only instead of 456 contestants, the cryptocurrencies vying for the cash prize number in the hundreds of thousands.
Collectibles aren’t always intrinsically worthless. Fine wine can be uncorked and consumed if you find yourself stranded on a deserted island. (Ideally, the source would also have left their antique boat collection behind). But much like a stamp collection or a seventeenth-century Rembrandt, crypto tokens aren’t particularly valuable unless someone else is willing to trade you for it.
Bitcoin’s recent decline highlights such problems. Of the top 10 trending coins on crypto aggregation site CoinMarketCap in early November, eight have seen losses in the double digits. That’s a big part of the reason why Moonshot has only ever recommended two meme tokens (Our picks generally have significant real-world utility).
Declining 4x faster than BTC on average
As Bitcoin continues its taper-tantrum slide, the meme token landscape will start looking more like an episode of Squid Game playing out on a desert island. When an asset class relies on trading, a sudden collapse in buyers will leave millions holding the bag.
Instead, meaningful utility tokens will take over. And long-term crypto investors should consider the tokens that are set to change the world.
How Can Crypto Change the World?
The meme coin “desert island” problem stems from the simple fact that these popularity-driven tokens aren’t particularly useful. Despite frequent promises to “help build your next-gen projects to life [sic]” or “reduce world poverty with binance smart chain [sic],” most of these meme favorites serve one purpose:
To transfer wealth from one party to another.
For every million dollars investors earn from tokens like Shiba Inu (CCC:SHIB-USD), an equal number of dollars must generally come from somewhere else. These “meme coins” alone don’t have the ability to magic U.S. currency out of thin air.*
That’s why experienced crypto investors tend to rely on arbitrage strategies.
“You’re not as exposed to the whims of the market,” explained Proxima Capital co-founder Oliver Chalk to Bloomberg News. “It’s not going to be as flashy as the long-exposure funds that pull hundreds of percent per annum… but at least it avoids all the stress of the up and down.”
Essentially, the pros treat crypto much like municipal bond arbitrage, focusing on leveraging small yield mispricings rather than trying to find the “next big thing.”
*Though crypto lending can theoretically create a money-multiplying effect, academics generally agree that mining costs outweigh these gains.
Step by Step
Fortunately, some promising cryptocurrencies do have the potential to make an impact. These Moonshots — often backed by big-name financial firms — tackle real-life problems with blockchain solutions.
I’ve already written about several of these Moonshots. DeFi tokens like Binance Token (CCC:BNB-USD) grease the wheels of token finance, while ambitious projects like Chainlink (CCC:LINK-USD) and Terra (CCC:LUNA-USD) bridge the gap between real-world information and on-chain transactions.
From an investment standpoint, these cryptocurrencies have performed reasonably well. The three tokens have averaged a 21% gain since my recommendation two months ago in “The 5 DeFi Tokens That Could Change Finance As We Know It.”
But what about cryptocurrencies that are truly groundbreaking? These are the coins that will not only change finance, but alter the world we live in. These are the cryptocurrencies that long-term buyers need to consider.
3 Moonshot Cryptos Set to Change the World: Hedera Hashgraph (HBAR)
The crypto community has long overlooked Hedera Hashgraph (CCC:HBAR-USD), a protocol backed by three dozen businesses including Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), IBM (NYSE:IBM) and the Tata Group. Perhaps it’s the protocol’s awkward name, or that few crypto investors want to be seen in the same room as the Big Blue dinosaur.
But HBAR is the tool that will bring blockchain technology to enterprises. In fact, it already has.
In January, the U.K. National Health Service (NHS) used tech developed by software firm Everyware to track Covid-19 vaccine temperatures. Everyware, in turn, used blockchain technology provided by Hedera Hashgraph to secure the data.
Hedera provides a way for companies to use blockchain technology without having to create a protocol or mining community from scratch (imagine the hassle of finding a thousand fresh crypto miners every time you launch a new project).
HBAR’s business backing also gives it credibility. Few blue-chip companies would willingly create a document verification system on Tron (CCC:TRX-USD), a cryptocurrency the founder himself referred to as a “sh*tcoin.” But trusting your data to a coin that Google itself backs? As the old saying goes, “nobody gets fired for buying IBM.”
As more companies adopt blockchain as a form of secure data storage, CTOs worldwide will ask themselves, “How on earth did we live without Hedera?”
When Crypto.com announced it had acquired the naming rights to L.A.’s Staples Center, my first thought was, “here we go again.” Investors with long memories might recall the late 1990s, when fast-growing firms pasted their names on everything from L.A’s Kodak Theater to the Houston Astro’s Enron Field.
But worrying parallels aside, Crypto.com is already changing the world. As previously covered in the Moonshot Investor, the company’s app now ranks No. 1 in Finance on the Google App store, beating out both PayPal (NASDAQ:PYPL) and Google Pay for the top spot. On the Apple Store, Crypto.com runs a respectable No. 2 behind Square’s (NYSE:SQ) Cash App.
This matters. Crypto.com has built a loyal following of investors looking for:
- Cryptocurrency trading. The popular app hosts over 420 different cryptocurrencies, twice as many as Coinbase (NASDAQ:COIN) does.
- Payment alternatives. Crypto.com offers a credit card that allows cardholders to net staking rewards.
- Non-bank savings. The site awards up to 12% in stablecoin USDC, plus another potential 2% in CRO awards.
In a sense, Crypto.com is turning into the company I once hoped Robinhood (NASDAQ:HOOD) would become. It’s quickly leapfrogging Square and PayPal in creating a crypto payments ecosystem that could replace traditional finance. At its current rate of growth, CRO could become a de-facto currency for many Americans in the years to come.
Finally, my No. 1 crypto pick of 2021 deserves another mention.
It’s been a strange year for the world’s second-largest cryptocurrency. Despite Ethereum’s 450% rise, most investors seem preoccupied with finding “Ethereum Killers” to buy instead.
But investors looking for a world-changing cryptocurrency shouldn’t settle for Solana (CCC:SOL-USD), Cardano (CCC:ADA-USD) or even Algorand (CCC:ALGO-USD). There’s no replacing the “king of NFTs” in the fast-growing world of tokenization.
Tokenization: Finance’s Next Frontier
The concept of “tokenization” is simple enough — even if, according to the internet, no one seems to know what NFTs are. By assigning a distinct identification tag to an asset (say, an image file of a rock…) you allow these assets to get traded for real-life money.
But the potential applications for tokenization are far greater than first meets the eye. For example, if a group of governments wanted to create a tokenized version of carbon credits, it’s far easier (and likely more secure) to create a system on the Ethereum chain than it is to start from scratch. The same could be said for Rocket League credits, Broadway show tickets and anything else buyers may want to trade.
No “Ethereum Killer” on the Horizon
Ethereum’s developers have also been moving ahead with a “Proof of Stake” rollout. Rather than rely on expensive mining, Ethereum “2.0” will essentially bring the protocol up to speed with third-generation cryptocurrencies. Cardano and Solana’s edge will essentially disappear.
“World-Changing” vs. Marketing Fluff
Every venture capitalist knows ideas are cheap. Business strategies are routinely “borrowed” and popular products eventually inspire a slew of counterfeits. That’s why VC firms typically consider a team’s performance as well as their business ideas.
The same is true for non-meme cryptocurrencies.
Let’s go back to carbon credits for a moment. As efforts to combat climate change ramp up, any platform that simplifies the process will become worth its weight in gold (or carbon, perhaps).
Unfortunately, great business ideas don’t always come with strong execution. Climatecoin’s promising start in 2018 ended with the token fizzling out, and Moss Token (CCC:MCO3-USD) seems to have taken the wrong cues from its predecessor.
Then there’s First Carbon Corp, a Vancouver-based firm that believes it can solve the problem with NFTs. Could the company succeed? Possibly. But like the best venture capital firms, crypto investors should wait for the first blushes of success before jumping in. When it comes to finding Moonshots, it’s best to avoid playing a game where thousands of contestants are competing for one winning spot.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.