Leon's Crypto Roundup #1

By Leon Fu Dot Com, @leon-fu The Oracle of Austin

November 14, 2016

I'd like to start writing regular updates on the crypto projects we're investing and following. These posts are meant to update our readers on what's on our radar.

Golem ICO

The news of the week is the Golem ICO sold out in 20 minutes. I did manage to get into the ICO for myself, Tai, and some close friends, but many investors were not able to. MyEtherWallet server's were overloaded, and they took a lot of flak (unfairly, IMO) for it. The thing to do to make sure you got into the ICO was to setup the transaction before the ICO started, so you could submit as soon as sale began. I had my finger on the Send button in MyEtherWallet, and was refreshing https://etherscan.io to submit my transaction as soon as block 2607800 rolled around. Regardless, the demand for GNT was far higher than the 820K ETH available at 1000 GNT/ETH, so there were going to be investors who missed out. From our experiences with other Ethereum based ICO's (Digex, First Blood, Singular), I knew there was a high likelihood Golem would also sell out in minutes. I also avoided commenting about it till now because there was already too much hype.

Despite some people not being able to get in, I think it's a good idea these projects are imposing caps of their fundraising, especially popular projects such as Golem. Overfunded projects are good for no one. It hurts investors with lower or negative returns and increases risk. It also hurts the projects by encouraging spending on things that are wasteful, frivolous, or not necessary. It also hurts the entire cryptocurrency/blockchain space by destroying capital that could be used for more productive purposes.

That being said, the Golem project looks very promising. The project has been going on for over 2 years. The team looks solid, has presented in DevCon1 and 2, and there's been a lot of transparency about the project. Also, these infrastructure type projects are what's needed at this time IMO. It's still very early in the blockchain space, so I'm more inclined to invest in foundational technology layers than in end user applications.

For those of us that were able to get into the ICO, early indications are that this one will be a winner. Some folks have written smart contracts to sell GNT's for ETH at 2X-3X I'm sure GNT's will be listed on an exchange in the coming weeks and I look forward to where GNT start trading at.

With 1 billion GNT's outstanding, GNT's being sold at 1000 GNT/ETH, that means ICO investors are in at a valuation of ~$10 mil. I'm looking for GNT's to trade somewhere between $20 and $50 million, the valuation of Digex and Augur. What Golem has in common with these projects is that they're all in the Ethereum ecosystem. Golem has been in development for about as long as the Augur. If my projection is true, that will give ICO investors a 2X-5X return at the start of trading.

Stratis

Stratis rallied 60% this week until the team asked Bittrex to stop trading due to a bug in the wallet. A fix is out and we're waiting on Bittrex to resume trading. Stratis reached a high of 13K Satoshi, over 12X its ICO price. It has been the most successful ICO for investors this year, primary because it was so undersold. 10 BTC at the ICO gave nearly 1 million Strats. Through appreciation, it has become my largest position in my portfolio. I interviewed Chris earlier in the year, and said on my Twitter that Stratis would be a huge winner if they accomplish: 1) some type of relationship with Microsoft and/or other significant partnership. 2) hitting their development milestones by the end of the year, which Chris promised in my interview. 3) a listing on Poloniex to bring in additional liquidity from traders on that exchange. In late October, they managed to get on Microsoft Azure, and they've indicated they're on track to releasing their first development milestone this week. 2 out of 3 of my targets have been hit, resulting in a 3X rally since the beginning of last September.

Going forward, I think fair value for STRAT is ~20K-30K Satoshi area. I believe they deserve the same valuation as LISK. The reason STRAT's don't trade there today is because it isn't listed on Poloniex. The additional capital from traders there could easily give us another 2X-3X. That being said, if you invested in the ICO, I would start taking profits now and I would sell again into the Polo pump. If you don't have any STRAT's, I'd wait for a pullback to below 10K Satoshi.

Waves

Waves has been rallying since the beginning of October and hitting an all time high of 57K Sat. ICO price was ~35K and it traded below that till the middle of October. If you've been following this project, you know Sasha and his team have been making progress and have been in constant communications with the community and his investors. The recent rally is on news release of their full node with token issuance is imminent. This project has been tough on investors. The project was way overfunded (Sasha admitting they received way more money than they needed) and ICO investors paid for it losing as much as 40% (~21K Sat) and were underwater on their investment for ~4 months. Furthermore, most of the investors seemed to be flippers trying to make quick profits after seeing LISK open up 3X. Rather than a quick profit, all investors were tagged for a loss. With the price now trading well above the ICO price, the flippers are out, and the project seems to have momentum. The lesson from Waves and Stratis is the valuation is supremely important. All things being equal, whether you buy into the ICO or wait until it starts trading on the open market depends on the valuation.

Monero

I've been eyeing Monero and it seems to have found a bottom with a 38% rally this week. I was waiting for it to drop below 700K Sat, which it did, falling to 600K Sat, but I didn't get around to pulling the trigger. I currently have a small position in ShadowCash instead. I missed the boat on privacy, anonymity, not realizing how large this market actually was until Monero exploded. These projects push the fact that privacy is of paramount importance to preserving our freedoms and liberty. While that is true, I don't believe law abiding citizens altruistic concerns about privacy, and liberty is good enough to be an investment thesis.

However, illicit markets, especially drugs is a huge investment thesis. Drugs, both legal and illicit, is the largest market in the world. There aren't many things people will commit murder, or countries goto war over. Drugs is one of them. In fact, the first billion dollars in market value for Bitcoin was buying drugs on Silk Road. Bitcoin is uncensorable, but lacks the privacy and anonymity features to keep its users safe from prosecution. Regardless of your moral or political views on illegal drugs, it's a MASSIVE market and the first crypto currency that gets even a fraction of a percent of this market will return orders of magnitude to its investors.

As for my political views, I don't believe drugs should be illegal. Drug abuse should be treated as a disease like other addictions, not a crime. We don't put alcoholics or smokers in prison and they do far more damage to themselves and society than drug users.

ZCash

ZCash had a ridiculous open, trading at over 3000 BTC. The hype around it is unbelievable as they seemed to assemble the largest group of nerds on a single crypto project. The project has promise, but the supply is artificially constrained with its slow start mining. I'd wait until mining reaches 12.5 ZEC/block before considering it.