Investing in cryptocurrencies can be a daunting task, especially with the numerous options available. However, conventional wisdom among crypto natives suggests that it’s not about thinking too hard about it – just pick a coin and hope for the best. But according to Cosmo Jiang, a general partner and portfolio manager at Pantera Capital, this approach won’t last forever.
The Importance of Fundamental Investing in Crypto
According to Jiang, "If fundamental investing does not come to this industry, it just means that we failed." As a self-described classically trained investor who worked in banking and private equity before joining crypto in 2022, Jiang believes that assets eventually follow the laws of gravity. The only thing that matters to investors at the end of the day is cash flow.
Attracting Institutional Capital
Jiang points out that crypto went from nothing to $3.4 trillion in market cap now on the back of retail interest. However, the only way for this asset class to keep growing is by attracting institutional capital. And institutional capital will only care about fundamentals. Logically, that will be the only way to make money on a sustainable basis going forward.
Pantera Capital’s Investment Strategy
Pantera has roughly $5 billion in assets under management, with about 75% of those funds locked in venture vehicles and the rest in liquid assets. As the portfolio manager of the firm’s liquid token fund, Jiang’s focus lies in publicly traded tokens. So, how does he pick which ones to add to the fund’s portfolio?
Product-Market Fit: The Key to Success
Jiang looks at product-market fit – meaning, at crypto projects that are developing products in areas where there’s huge demand. There are two basic questions at the forefront of his mind:
- Can the team execute on their vision?
- Will the token capture some of the economic surplus generated?
Layer-1 Networks: Solana vs. Ethereum
When it comes to crypto projects, layer-1 networks offer some of the most battle-hardened business models. Smart contract platforms are relatively old – Ethereum launched in 2015 – and generate revenue through transaction fees. Their tokens also accrue value when their networks see increased usage.
Solana’s SOL and Telegram’s TON have been two of Jiang’s favorites. However, Ethereum’s ether (ETH) isn’t as attractive of an investment as it used to be, because new users aren’t flocking to the network.
The Numbers Speak for Themselves
According to data, Solana has seen a significant increase in usage and adoption, while Ethereum is still struggling to keep up. This trend is likely to continue, with Solana’s growth outpacing Ethereum’s.
DePIN: The Future of Blockchain Technology
Jiang’s attention isn’t confined to layer 1s, however. DePIN – an umbrella term for projects focused on building physical infrastructure with the help of blockchain technology – is another source of interest for him and his team.
DePIN projects include Render Network (RNDR), which enables people to lease unused computing power, and Arweave (AR), which functions as a data storage network. These are real businesses in the real world, making them attractive to investors.
Memecoins: A Growing Sector
Jiang is not against investing in memecoins too – or, at least, in the projects that enable memecoin trading, if not the coins themselves. As he points out, "I would never, as a hedge fund investor, invest in a blackjack player. But I’ve made a lot of money investing in casinos."
The Future of Blockchain Technology
Even though blockchain technology has lagged behind throughout the year, Jiang believes that prospective returns on such tokens should ultimately be higher than for bitcoin.
The incoming Trump administration will likely be much friendlier towards the industry than the Biden one ever was. This is a positive sign for the future of blockchain technology and investing in crypto.
Conclusion
Investing in cryptocurrencies requires a fundamental approach, focusing on product-market fit and cash flow. Institutional capital will only care about fundamentals, making it essential to adopt a more traditional investment strategy. Pantera Capital’s investment strategy, led by Cosmo Jiang, highlights the importance of layer-1 networks and DePIN projects.
While memecoins may be a growing sector, they should not be overlooked as potential investments. As blockchain technology continues to grow, we can expect to see higher returns on such tokens compared to bitcoin.
The future is bright for crypto investing, with billions of users expected to join the blockchain ecosystem in the coming years.
