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Below are a few of the basic frameworks we use before making an investment. These are basic frameworks designed to help an investor ensure a project aligns with their investing vision. Before jumping in you need to determine why you're investing in crypto. Are you here for decentralized projects, memes and jokes, or cutting edge tech? Crypto Resource Group does not judge. CRG does, however, focus on decentralized projects and cutting edge technologies. In our opinion these are the projects most likely to generate long-term intrinsic value. Memes are fun and Doge routinely mints multi-millionaires. The reality is these are lottery tickets. CRG does not want to invest on the whims of troll billionaires, as much as we enjoy the trolling.


(1) Is the blockchain decentralized? CRG is a believer in a decentralized future. Not fake decentralized like Solana, but truly distributed and protected from state, regulatory, or corporate capture. These are quite rare in the wild. Bitcoin is the most well known decentralized project. There are other blockchains and crypto technologies attempting to decentralize, however, many suffer from various forms of centralized or scaling limitations. When reviewing the level of a project's decentralization, one needs to check:


(d) decentralized entities/organizations/developers interacting with and supporting the network


Further, are key network nodes and operators geographically decentralized or are they clustered in certain jurisdictions? Are material portions of each network in rival states? Do certain founding members/insiders have or control a disproportionate amount of power and influence over the blockchain? For example, do they control multiple entities with outsized power and influence over the blockchain? Each of these must be reviewed independent of one another to determine a blockchain’s level of decentralization.


(2) Alternatively, does it even matter whether the base layer is decentralized? Just because Ethereum may (arguably) be captured (OFAC-compliant censored blocks) it does not mean there’s no network value. Ethereum generates tremendous daily revenue, which go to its staking validators. From a fundamental investing perspective (i.e., intrinsic value), Ethereum is one of the only blockchains that actually has any tangible value (i.e., generates cash flows). A similar idea goes for Solana. Solana is super centralized but it has incredible network effects and tons of developer and user activity. What it may lack in decentralization is made up for in developer and user market share. According to some investors, network effects trump all (including decentralization).


(3) Are there Layer 2 blockchain scaling solutions (see: https://www.coindesk.com/learn/what-are-layer-2s-and-why-are-they-important/)? Is there an execution or smart contracting layer built on top of the base layer in order to solve one or more of the blockchain trilemma issues? Scalability, decentralization, & cost to transact. If you plan to invest in a Layer 2 solution you need to determine whether there is value accruing to these layers? Said another way, does the Layer 2 make money or do all the fees flow down to the base layer? If there is value accrual, then the scaling layer may be a great investment in addition to scaling the ecosystem. There are many different forms of Layer 2 solutions with an almost infiinite amount of trade-offs. These include peer-to-peer networks, sidechains, and separate global ledgers. A few examples include: Optimism, Lightning, Arbitrum, zkSync, Stacks, Rootstock, & Polygon.


(4) Are there promising ecosystems or critical infrastructure outside of the Bitcoin and Ethereum blockchains? These blockchains may either be base layer blockchains or innovative infrastructure designed to scale the crypto ecosystem agnostic of chain loyalty. Further, do these projects have compelling value accrual mechanisms in place to reward token holders (i.e., is there fundamental value)? We always come back to whether there is fundamental value or whether it's mere speculation. Sometimes speculation pays but you need to have a deep understanding of the project(s) you are investing. A few examples include:


(a) Cosmos (ATOM) provides an ecosystem of blockchains designed to scale and interoperate with one another. CRG has not performed due diligence on this project yet but it does appear to be an interesting piece of crypto infrastructure that could grow the ecosystem.

(b) Thorchain (RUNE) is a decentralized cross-chain liquidity protocol that allows users to swap assets between blockchain networks. A very interesting piece of infrastructure. Again, CRG has not performed diligence and does not know the level of decentralization provided nor the types of assets that can be swapped. Are they native assets or wrapped? These pose further investigation before considering any serious thought of investment.

(c) Chainlink (LINK) is a decentralized blockchain oracle network that interacts with any blockchain. It provides off-chain data for on-chain smart contract execution. Many think it is the most important scaling technology in the entire crypto space. Further, there have been attempts to provide fundamental value for LINK token holders in the form of staking. Staking goes live later this month.


First and foremost, Crypto Resource Group is believer of decentralization. CRG believes decentralized projects have tremendous intrinsic value as the highest form of public good (they transcend nation-state and corporate boundaries). Truly decentralized protocols are pressure relief valves for an increasingly dangerous and autocratic world. Alternatively, investors may prefer cash/token flows and need to be able to discount these flows well into the future (think DCF modeling). Cash flows, blockchain native discount rates (i.e., yield curves), and network effects (Metcalfe's Law, Reed's Law, etc.) generate real value to a blockchain. These blockchains may act more like traditional tech companies instead of their decentralized cousins. The net net is there are many ways to invest in the crypto markets. The way to succeed is to have a strong well thought out vision and find projects to invest within that frame.


CRG hopes this post was helpful for framing your investment thesis. If you'd like to learn more please schedule a call today!

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I find the best way to learn is through experience. You can read all the books and listen to all the podcasts but you cannot truly understand until you do. Crypto Resource Group was deeply invested in the crypto economy over the last crypto market cycle. As a result, there were MANY investing lessons learned the hard way. And of course the best lessons learned are always when you lose.

Eight Fundamental Investing Truths Learned from the Last Crypto Cycle

  1. Do not invest in something you do not understand. If you do not understand the blockchain, its ecosystem, or the tokenomics of the project you need to pass on the investment opportunity. If you don't understand the mechanics of the blockchain and its tokenomics then you are begging to buy high and sell low.

  2. You must understand the relationships and web of connections between the founders/insiders and their financial sponsors. Who has the project partnered with? Are the VC's high integrity or known for predatory practices? Solana is a perfect example of sharks absolutely feasting on unsuspecting investors (will discuss in further article). A truly disgusting trap for many unsuspecting investors.

  3. You must understand the project's media and influencer connections. If not, you be tricked and fleeced by advanced FOMO marketing tactics. I've seen this a million times in the space. If you see coordinated marketing attempts in the news and on Twitter you are more than likely, late to the investment, and almost guaranteed as some insider's exit liquidity.

  4. Invest probabilistically. Size your bets accordingly so that if you're wrong or mis-invest you have the ammo to fight another day. Bet larger on the projects you have high conviction and smaller on the more speculative opportunities. You want to generate the optimal risk-adjusted returns. Betting huge on a meme coin is no different than buying Powerball tickets. Yes you may win massively but odds are you are going to lose everything.

  5. Do not marry your positions. Have the intellectual flexibility to challenge your existing thinking and update how you view the crypto markets. Crypto is the fastest market in the world. New narratives and breakthrough tech developments drop almost daily. If a new tech development turns your investment into an endangered project, you must be able to immediately unload your position before the crowd comes to the same conclusion.

  6. Recognize the top signals. When you see Justin Bieber (insert celebrity) shilling an NFT and blockchain project it's time to harvest your gains into cold hard cash. Celebrities are exit liquidity and will always remain that way. Steve Aoki was very invested in crypto this last cycle and has an atrocious track record. He pretty much bought every single top in every single project he invested. His manager should 100% be fired! Another top signal is when you hear that your local crypto hater finally decides to enter the market. The guy that was laughing at you in your texts/DMs when the market was down 80% is your top & bottom signal. When he laughs at you then you MUST buy because the bottom is in sight. When he brags about his newest crypto investment then you MUST sell because the top is in. This piece of advice is pretty mean but it will help you stay highly profitable.

  7. Watch what the insiders DO, not what they SAY! The industry is rife with scammers and self-promoters. If there is smoke, abandon ship ASAP. Do NOT wait for the fire. You can always re-enter the project 6 months later (if a misunderstanding). Odds are, however, that you avoided a massive drawdown and protected your capital. Time and again I witnessed sleazy founder/insider/investor weasel their way out of hard questions and dump their entire position shortly thereafter. These people would then have the gall to provide some non-sensical excuse why they needed to sell. Shortly thereafter, the project would nuke or get hacked or (fill in the blank horrible news) and the founder/insiders would slink away with millions of dollars in investor capital. I've witnessed many communities left holding the bag with no recourse. Very sad!

  8. Similar to the last point, avoid all projects where the founder/insider is aggressive, has a huge ego, or fails to explain away contradictory facts. This has a 100% chance of being a scam. Avoid at all costs! Luna-Terra founder, Do Kwon, is the poster child for this truth.

These eight truths are a taste of the many lessons learned over the last crypto cycle. There are dozens more subtle lessons learned from the last crypto cycle. If you'd like to learn more about my strategies and risk management please reach out and we can set aside some time.

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Updated: Nov 16, 2022



Photo Credit: Blockworks

While the news of the collapse of FTX is empowering crypto skeptics, we would point out that all of the recent collapses in the crypto ecosystem have been from centralized players and not from decentralized protocols.

-JP Morgan


If you spent even 30 seconds looking at the news this past week you saw the name FTX. FTX dominated the news cycle even with US midterm elections last Tuesday. This fact alone should signal the absolute size and scale of the FTX blowup. What is FTX? FTX was a leading cryptocurrency exchange specializing in spot markets, derivatives, and leveraged products. Founded in 2018 by Sam Bankman-Fried, FTX was an overnight success leveraging a strategy of hyper-growth into the world’s third largest crypto exchange.


You may have seen FTX’s stadium naming-rights deal with the NBA’s Miami Heat (FTX Arena), the FTX logo on MLB umpires’ uniforms, or heard of the infamous FTX Series B-1 capital raise of $420.69 million with 69 investors. FTX was seemingly everywhere the last bull market. Even when the crypto markets collapsed in March of this year, FTX repeatedly stepped in as the buyer of last resort. Many in the crypto industry viewed FTX as crypto’s central bank. In the aftermath of the Terra-Luna and 3AC market crashes FTX acquired troubled CeFi (“Centralized Finance”) companies, Voyager and Blockfi. FTX even acquired a stake in Robinhood.


In the end, all this projected confidence was smoke and mirrors. On November 6th, Binance CEO, Changpeng Zhou (“CZ”), announced Binance’s intention to liquidate all ~23 million FTT tokens in their possession, representing $530 million. FTT tokens were the native token of the FTX ecosystem. The liquidation announcement triggered an immediate bank run on the FTX exchange forcing a massive liquidity shortfall. In the end, FTX was unable to handle the contagion and was forced to file for bankruptcy.


Investigators are still piecing together the details that lead to FTX’s blowup while others are looking into potential contagion. There will likely be significant institutional crypto blowups in the coming months. Centralized crypto exchanges Crypto.com and Gate.io are rumored to be under duress. When the dust settles, we will likely be shocked at what is uncovered. Trusted 3rd parties like FTX (i.e., centralized exchanges more generally) were assumed to operate honestly and with integrity. What we are learning is FTX perpetrated one of the largest frauds in modern history (only Madoff & Enron were bigger). As a result, many of the industry’s leading investors, operators, and supporters have watched in horror as their funds disappeared in one of the largest capital destruction events ever recorded.


The pseudonymous Satoshi Nakamoto created Bitcoin in the depths of the 2008 Great Financial Crisis (“GFC”). The GFC was the direct result of “trusted” Wall Street entities abandoning conservative risk management strategies in favor of get-rich-quick schemes. NINJA loans (“No Income, No Job, No Assets”) became the industry norm and the largest real estate bubble ever formed was created. The general public remembers the devastation wrought by the GFC. In many ways the collapse of FTX is similar to the GFC as “trusted” 3rd parties were overcome by greed. The result was a complete abandonment of financial controls, the commingling of user funds, and eventual fraud. This disaster will likely haunt the crypto industry for years.


Since Bitcoin’s inception, a core crypto vision has been to build a decentralized and trustless system free from human fallibility. In the most recent bull-market many of the largest players abandoned crypto’s core principles. As a result, many suffered catastrophic losses on FTX. FTX’s failure as trusted intermediary is why I remain bullish on the future of crypto. In my opinion, the thesis for decentralization and transparency remains fully intact. The near-term will likely remain choppy with regulation fears and participants exiting the industry. Longer-term, the industry will return to first principles: decentralization; transparency; and trustlessness.


So why am I still bullish? FTX’s blowup represents a central point of failure, human fallability. The crypto industry’s overarching goal has been to disintermediate “trusted intermediaries” into fully decentralized, transparent, and trustless protocols. In the euphoria of the bull market players big and small abandoned these principles. And as a result, nearly one million users lost more than $1 billion worth of assets on FTX. The losses will not be forgotten (nor forgiven).


Bitcoin is the separation of money and state. Crypto tokens are the separation of corporation and state. In 2020 we saw the rise of Decentralized Finance (“DeFi”) and in 2021 the explosion of non-fungible tokens (“NFTs”). Both of these innovations drove greater transparency to finance and entertainment markets and are forcing both industries to innovate or die. DeFi performed flawlessly in the FTX implosion. NFTs were also largely unaffected by the carnage. Crypto users in both of these industries largely avoided the chaos through the use of self-custody wallet solutions. I expect future users to increasingly self-custody their crypto in the wake of FTX. Further, I expect consumer-friendly apps to funnel new users into self-custody. Social wallets are one of many solutions in development.


Currently, there are problems transacting exclusively on-chain (protocol hacks, bridge exploits, scam links, and vaporware tokens). Maturing crypto infrastructure is slowly but surely improving the user experience by overcoming many of these issues. The steady march of innovation will ultimately realize Satoshi’s vision. As JP Morgan mentioned above, the implosion of centralized entities will not stop the progress of the decentralized economy. For this reason alone, I am still bullish on crypto and the greater crypto industry at large. It may take time to earn the public’s trust, but the underlying goals are too important to be abandoned.

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