Identifying future altcoin gems is something that often tends to get a lot of attention. However, the motives behind many of these “ideas” are often quite questionable, to say the least. The altcoin market now holds in excess of 21K coins and tokens. This makes the job of Identifying the true gems that much more difficult.
As this market grows, it becomes increasingly more difficult. Not only because there are more projects to choose from but because a “good use case” is no longer enough. This has always been touted as the apex of altcoin investing. This is true, but only in part. A good use case is simply not enough. There needs to be “relevance”. Looking back to 2020, ChainLink surfaced as one of the year’s hottest altcoins. The project offered a much-needed service that translates information between legacy systems and the blockchain. Here is an excerpt from ChainLink’s official website:
Oracles provide a way for the decentralized Web3 ecosystem to access existing data sources, legacy systems, and advanced computations. Decentralized oracle networks (DONs) enable the creation of hybrid smart contracts, where on-chain code and off-chain infrastructure are combined to support advanced decentralized applications (dApps) that react to real-world events and interoperate with traditional systems.
Oracles provide an essential service, which definitely falls into the category of a “good use case”. However, numerous other altcoins were, at the same time, also providing a similar service. It was, however, ChainLink that managed to garner all of the attention. Projects such as Band Protocol and API3 managed to attract some attention off of the back of LINK. So, what made ChainLink special?
ChainLink was already, at that point, extremely relevant in terms of partnerships and actually being relevant to the business world in “real terms”. This is ironically one of the factors contributing to the failure of Meta, outside of the obvious. Meta is not relevant… nobody is really interested in it, besides Zuckerberg. Facebook, as a whole, is slowly losing dominion. I think this will only increase as Elon takes control of Twitter. Zuckerberg is not a builder. Look back to the foundational level of Facebook, you won’t see Zuckerberg.
Relevance comes down to a few important dynamics and is something that I am learning to “watch out” for more and more. It is sometimes difficult to separate the essence of a project from the hype. It is obviously easier with some. However, I choose to look for these three elements.
ChainLink is a good example of where being relevant in the marketplace is essential to garnering “investor capital”. Even if there was a better option, ChainLink secured investors by being actively relevant and associated in the marketplace.
A good example of the second point is MATIC. Polygon rose to prominence at a time when ETH gas fees were going through the roof. There was such a strong demand for this particular second-layer solution. A healthy demand from a user base or community will inevitably result in an appreciation of value, especially if the particular token in question is required for transactions and usability.
Market Cap Ceiling
The third aspect of relevance comes down to whether a project actually qualifies in terms of market cap appreciation. Even though a Top 10 coin can still experience significant growth, it is unlikely that it will outperform the benchmark. This is where the “positioning” of the project is important in terms of its market cap ranking. A low cap projection that ticks one or both of the previous boxes will most likely perform exceptionally well due to its potential upside.
This is a very important dynamic. However, many overlook the first two points and simply choose a project because it has a low market cap. They reason that it will eventually experience significant growth due to this factor. It is a very important factor but should never be viewed in isolation. This is a common issue, even in the trading realm. Investors make use of an isolated model and then conclude that the price is about rise.
Confluence is important, even vital, investors need to identify alternative indicators that support their thesis. You cannot establish a credible thesis on a single model or chart. The same is true of identifying potential altcoin gems. The song needs to rhyme…
I have used this approach to identify a number of altcoins that went on to perform extremely well. Solana was one of them, my initial purchase was at approximately $0.30 or so. This was extremely early on prior to major exchange listings. Another was UBT, at approximately $0.01. Unibright went on to rally as high as $4.22. My first article addressing Solana was when the coin was trading in the $5 zone, which would still imply a return of 600% at current valuations.
Identifying these potential “winners” early on will ultimately put you in an “untouchable” position. Imagine, being up 600% during a financial disaster. Obviously, buying even earlier on would imply even greater gains. This is where LEO could also eventually become a performer that ultimately “protects” and hedges early investors from tragedy.