Level 5 Crypto Investing Strategy

Table of Contents

Disclaimer: Crypto is a fast-paced economy and things change quickly. Information on this post might be outdated even if written today. Do your own due diligence and stay safe. I might get affiliate commissions for purchases made through links in this post. Read the disclosure.

As mentioned multiple times before, the bridge to crypto is usually Bitcoin. Bitcoin is the world’s most known cryptocurrency and the reason is that it’s the longest surviving crypto coin out there. In this article I go through the different levels you can invest in crypto. This can be seen as a crypto investing strategy but is much more as the deeper you get into crypto you realize that the gains are bigger and bigger the deeper you go.

This also applies to the price effect. The deeper you go into crypto investing and lower market cap projects you find, the smaller the effect of Bitcoin’s price is. Yes, Bitcoin still affects the whole crypto market but the moves are wilder the deeper you are. Bitcoin might go down a bit in value, but the lower market cap products can go up 200% in the same time span. 

And there’s a reason for this. The deeper-level projects are the ones that only the crypto enthusiast know about. So the ones that invest in those projects GET what crypto is all about and the price movement of Bitcoin is almost irrelevant in these levels.

Level 1 Bitcoin And Stablecoins

Probably the most boring way of investing in cryptocurrency but at the same time the least volatile investment in crypto space. Bitcoin is also seen as a safe haven for your money if not taking into account stablecoins. Stablecoins also offer a very profitable investment strategy if done correctly.

Bitcoin is kind of the link between the physical world of the economy and the digital economy. Bitcoin is usually the first investment people make when entering the crypto space. It’s thought that just holding Bitcoin for a few years or for a full bull cycle, will net you a massive profit and that statement ain’t too far from reality. 2021 bull run already showed Bitcoin achieving some nice 1,179% gains. That is from the bottom of 2020 to the top of 2021 and that’s only the beginning or that’s what they say.

Then we have protocols like Anchor Protocol that gives you a nice 20% yield per year for the deposited stablecoins. On top of that, the protocol works with UST, which is an algorithmic stablecoin created by the Terra Protocol.

Anchor Protocol is triple audited by Cryptonics and Solidified, but even with an audit the project or protocol might get hacked. As happened with one of the projects that Cryptonics had audited. So even if projects get audited, there’s a difference between who audited the project, just an audit isn’t enough, it has to come from a reputable firm (which isn’t an easy task).

Strategy

Bitcoin: Buy Bitcoin at any given price or when there’s a good amount of technical analysis behind your decision and then just HODL for a few years. Crypto has bull and bear cycles, but the cycles move fast and might not last long (months, weeks). So when you are investing in Bitcoin expect things to go wild in a relatively short amount of time.

Stablecoins: BlockFi, Celsius, Crypto.com, and other centralized services offer you a nice yield for your stablecoins. We must not forget why Bitcoin exists and that’s for the decentralization of money. Currently, the best place to earn the highest rate for your stablecoins is Anchor Protocol. However, in the deeper level strategies, you can get even an 80%+ yield for your stablecoins. But to keep the level 1 strategy easy, relatively safe, and manageable. Anchor is one of those protocols worth checking out.

Level 2 Major Altcoins

The next level strategy would be to invest in the largest layer 1 altcoins. Meaning Ethereum, Cardano, Solana, Avalanche, Fantom, etc., layer 1 blockchains have gained enough traction so that they can be somewhat of a long-term investment in the crypto space. Long-term being roughly 1-2 years. 

Layer 1 coins are ones that are not easily developed, they require a massive amount of coding knowledge, testing, marketing, and even then some layer 1 blockchains won’t make it to the top 50 list, regarding market cap.

While the market cap is somewhat a vanity metric, it’s one way to look at the popularity of a coin. When a coin reaches the top 50 list for example in Coinmarketcap or CoinGecko, it’s already massive in size and worth further inspection.

There’s a huge difference between a layer 1 coin and a token. Coin in crypto is meant for the blockchains and a token is meant for dapps’ that are built on top of the layer 1 chain. So when you check the CoinGecko list and the top 50 coins/tokens, remember that coins have a bigger value proposition than the token.

If the chain fails, the token loses its value instantly. If for example, Cardano (ADA) blockchain fails, then all the dapps that are built into the chain also fail, bringing the whole Cardano ecosystem down and all the tokens with it. So thinking from this perspective, the ecosystem coin is more valuable and stronger than a token.

A token can fail and it wouldn’t bring the blockchains’ native coin value down (except if it’s a massive core DeFi token that is integral to the whole ecosystem, then it might have a price effect). So a token can fail, but a coin can’t.

Also when investing in the major altcoins, one pre-requisite is that the coin can be found from all major centralized exchanges, namely Binance, Coinbase, KuCoin, Kraken, and Huobi. When a coin gets listed on a major CEX (Centralized Exchange) it’s sort of a milestone for a project and might mean it’s not a totally bad investment.

Strategy

It’s not a bad idea to buy the biggest layer 1 coins. The biggest chains that have the most TVL (total value locked) means that people use the chains, are invested in the chains, and also believe in the future of those chains. At the time of writing Solana, Fantom, Avalanche, and of course Ethereum is the biggest chains and also the most developed chains out there. While Polkadot is also a chain worth mentioning, it’s also worth noting that Polkadot is kind of creating the same thing that the others chains have created. A multi-chain ecosystem.

Market Cap

>$1,000,000,000

Example Coins

FTM, SOL, AVAX, ETH, MATIC, LUNA

Level 3 Dapps’ (Decentralized Applications)

While still staying in the centralized exchanges (for ease of use and convenience), the focus moves from major altcoins to mid to small-market cap altcoins. While the term altcoins can be a bit misleading, we focus on tokens and not coins. Dapps are decentralized applications that are built on top of the actual blockchain. Blockchain is the base layer (layer 1) that handles the transactions, security, and validating the blocks to the chain.

Dapps create transactions for the chain to chew on. Dapps are almost the most important part of the chain, as dapps enable the usage of the chain. Without dapps, you would have a chain, without real functionality. There are plenty of blockchains that have zero dapps, but the adoption of those chains is somewhat limited as blockchain enables so much more and thus Ethereum with its smart contract implementation went and grew exponentially.

When you see a token listed on CEX it’s safe to say that there is some demand for it. The market cap might be small and it could be that token is yet to pump, making it a risky but rewarding investment. Dapps like SushiSwap, PancakeSwap, AxieInfinity, Sand, etc. are all dapps that work on top of a chain. 

But for us to stay in the level 3 investing strategy, we have to stay in the world of CEX investing. CEX’s offer an easy interface to invest in crypto and what makes them convenient is the order book mechanism, which still isn’t present in the DEX (decentralized exchanges) world. Order book enables you to make quick in and out trades and with limit and market orders, you can get entries that aren’t possible in DEXs yet.

Strategy

The most developed blockchains like Avalanche, Ethereum, Fantom, Solana all have dapps and those dapps are presented as tokens. If you see an ecosystem pumping like at the time of writing Fantom (FTM) ecosystem is one that is gathering TVL (funds, money, attention, users), then the tokens that are developed for the pumping chain might present a nice investment opportunity. BOO for example had a massive run and might still make a few legs up (written 16th of January 2022), and it’s only because the whole ecosystem is pumping, so obviously the most used DEX token also pumps.

Market Cap

>$100,000,000

Example Tokens

SUSHI, CAKE, AXS, SAND, MANA

Level 4 Small Cap And Micro Cap Gems

This is the moment we get to the deeper part of crypto investing. These gems are the ones that do not surface to the CEX’s ever or after a long time. These micro-cap to nano-cap gems are the ones that you only find through Twitter and from Twitterati. It’s almost like you just stumble upon these and then maybe there’s something behind these tokens or not. More than usually these projects are tokens and not full-blown blockchains. 

Blockchains need a lot of capital and manpower to be developed. They need a lot of marketing and a clear roadmap with quality audits etc. However, when we are riding the Twitter gems, the research is on us and our knowledge of how tokens and blockchains work. Without proper knowledge and understanding of fundamentals, you will more than likely get rekt.

Micro market cap tokens are in the range of $10,000,000-$100,000,000. After roughly $100,000,000 the token starts to become a large market cap token or a coin. However, these values are only valid for a few years from here as the market caps will grow exponentially. Meaning that what is now considered micro and nano will become even smaller.

Dexscreener is an awesome service where you can find these gems listed and tracked. Tokens like PIGGY, HERMES, MAG, HEC, etc. all belong to these micro cap, small cap tokens that are still unknown to the majority of the crypto traders. You more than likely also can’t find these from centralized exchanges because of the rarity they present.

Strategy

Community. One of the biggest affecting elements when investing in these tokens is the community. Is there a lot of enthusiasm, expectations, hope, and hype surrounding the token, and the project? Is the team known, anons? Is the project audited or is there an audit coming, and is the audit from a reputable company? Is there an active Discord community and is the project team and developers interacting with the community?

Because the project and tokens market cap are so small, the mentioned elements play a vital role in the success of the token. There’s a reason why $TIME and $wMEMO became such a huge success. The team is fantastic, active, and known (at least Daniele Sestagalli). By creating a loyal community behind the token, the (soon to be DAO) grew exponentially in a matter of a few months. 

Market Cap

$10,000,000 and >$100,000,000

Example Tokens

PIGGY, HERMES, MAG, HEC, PER, VPND

Level 5 Degen Mode

The deepest level of crypto investing. You can find tokens only by luck and by getting a Twitter alert of a stealth launch. Also, the Twitterati is of high value here. A friend of a friend has found a token that might be worth checking out and by a small snowball effect will gain more and more popularity and soon the token has exploded massively.

The risk and the reward are the highest at these levels. However, when we go deep enough we find tokens that give you an insane amount of APR and APY. And the reason this happens is that there’s a huge amount of tokens to be shared with the small amount of TVL locked. For example, there’s a PIGGY TOMB fork in the Avalanche chain and at the launch of the token there was a rough 100%/day APR and when there came more and more people to the project the APR dropped as the TVL grew.

However, the ones that were early in the project easily doubled their money in one day. The risk is huge, but the reward is huge too. The same applies to YieldWolf, a protocol that creates an APY version of the TOMB forks APR system, giving you insane APY for LP tokens. Yet a project that is not so known (at the time of writing) and thus the rewards are there for the taking. 

At these levels of investing, the possibility of a rug pull or whale manipulations is evident. It’s almost considered gambling when investing in these nano market cap projects but the ROI can be insane too and the early rewards are always unheard of.

The difference between level 4 and level 5 is that the project has just launched, and you are early in the game. You are one of the first owners of that token and it’s a miracle you even found that token from a DEX.

The Game

Being early and timing your entry is crucial. Even if you miss the stealth launch, there are still opportunities here. Some projects give you insane ROI for being early and if you have the capital you can double your money in a matter of days. Discord, Twitter, documentation, project team all play a part here. When the market cap is roughly $50,000+ it might be “safe” to invest in the project a bit of money and when the project grows to $1,000,000-$5,000,000 it could be the right time to get out of the project.

There are almost always whales in these projects and some might even be giga whales and for this very reason, the project might die in an instant leaving you at a loss. So if anything, do check the project’s token contracts, LP contracts, and also check which wallets have the most tokens and if there are any whales present in the project.

This data can be found from the token scanners that each blockchain has for example AVAscan, Fantom Explorer, etc. So be careful when you see a project linking token information to Snowtrace for example, as that token explorer won’t show you the token distribution and token holders.

With TOMB forks, for example, there’s a game that is being played by the smartest ones and it even works like clockwork. If you dig deep into the market dynamics of some TOMB forks like DIBS and DSHARE you will slowly but steadily see that the epochs and the way people buy and sell DSHARE are systematic and far from random. There’s a game being played and you are out if don’t know how the game is being played.

Even the high APRs and APYs might not cover the loss in price valuation. The amount of shilling by some influencers is all part of the game and you become a player the moment you buy a token that you haven’t researched by yourself. Crypto is a beautiful thing but it’s also ugly if you don’t know what you are doing.

Market Cap

<$10,000,000

Examples Tokens

WINE, GRAPE, 2SHARES, DSHARES, 

Juha_Ekman_Avatar_Round_Mini
Written By Juha Ekman

Table Of Contents

Services Used

More Alpha...