Value Investing Case Study: Does it apply to Crypto?
For some reason, I managed to stumble upon this article by Dr Wealth that was written back in Feb 2018 regarding his LTC trade.
Simple TLDR is that the NAV was $1.63, but was trading at $0.60. Dr Wealth had quite high confidence in the integrity of the underlying assets, since they were largely in (1) investment properties that are yielding good rental, (2) fixed deposits and (3) cash and bank balances. These kind of assets do not need to be marked down deeply when considering their salvage value.
7 months later, buyout offer with a 54% return from entry.
Fantastic trade.
This reminded me very much of my Saizen REIT trade which saw me realize a total gain (dividends + gain) of 40.4% over about 1.5 years. I consider it as one of my early masterpieces because of just how sure I was that all the evidence is pointing towards good future gains. Yes, I had strong evidence.
Now, buying assets at a discount to NAV is a pretty good strategy if it satisfies some criteria:
1) there should be enough upside premium to be earned after conservatively marking down assets
2) there is a reasonably good chance that you as an owner can eventually realize this premium
Question. Does this apply to crypto?
Answer: Largely, no, it does not apply.
Back in December 2017, I was very bullish on DGD that I happily shared my pick after doing months of in depth research. I had a rather straightforward P/NAV value investing thesis on DGD. Now comes February and DGD starts to boom, and it doesn't stop til even in March and just keeps going higher and higher.
What did I do? I sold a pretty portion pretty much right at the top.
Since then, I've still held onto a fairly decent size of DGD until they started releasing out the governance and I saw first hand how the governance was working out. Spoiler: it's not good.
What we saw was a medium post with a full proposal to withdraw and use $20m of DAO funds that was up for a Carbon Vote.
I'm no math genius so I've used their math, but this means that each DGD is now only backed by ~0.2 ETH per DGD. That's an instant -13% in the "NAV" of DGD in ETH based on this one vote.
Sure, the funds will be spent on "stuff", but everything that the project done so far has been very depressing. Their gold backed token, DGX, is mainly only trading on Kryptono, which based on a very recent report, inflates their actual trading volume by 190X. Yes, that's not 190% (2 times). It's a freaking 190 times. I've eyeballed and compared the data with my own data on exchanges that I was collecting and analyzing just the weak earlier, and the report looks solid and corroborates a lot of my own findings.
What else? Well, circulating supply of DGX is only ~$2.6m, which is hardly enough to generate any fees to add on a DCF valuation. You don't need to trust me, you can verify. In the past half year of operating, they've managed to collect $6500 USD worth of fees. Those fees are to be shared among the token holders. Each holder gets $0.003 per DGD. They need more like $260m DGX in circulation to even have any impact.
Also regarding the governance - the tight supply of just 12/28 accounts controlling 51%/67% of the votes respectively also doesn't bode well with me, considering how they approved to sell ETH at the market bottom. Why not reject it and vote to disburse a smaller amount, like $2-5m? Why not force out a better and more elaborate budget and proposal? These oligarchs are either stupid or have an ulterior agenda. Either way, it does me no good.
So, what did I do? I sold off my remaining DGD positions at 0.22 ETH and 0.19 ETH respectively. Yes, those final positions booked a small loss relative to my entry positions. However, I overall made good profit considering the staggering amount of profit that I booked earlier in late Mar when DGD was peaking.
It's a less than ideal ending, but this is a good case study of why information needs to be constantly assessed to check that your investing thesis still holds true.
Learning points:
1) Few crypto can be valued on a NAV basis, unless they are explicit securities
2) There are no "forever" positions. Be willing to change your mind when circumstances change.
3) You have no idea when strong supporters of a crypto has dumped them (like me)
And regarding that last point, that's the problem with crypto eh? I've highlighted it before:
For people who blindly bought into DGD, just a final heads up that I truly hold zero of it now.
Simple TLDR is that the NAV was $1.63, but was trading at $0.60. Dr Wealth had quite high confidence in the integrity of the underlying assets, since they were largely in (1) investment properties that are yielding good rental, (2) fixed deposits and (3) cash and bank balances. These kind of assets do not need to be marked down deeply when considering their salvage value.
7 months later, buyout offer with a 54% return from entry.
Fantastic trade.
This reminded me very much of my Saizen REIT trade which saw me realize a total gain (dividends + gain) of 40.4% over about 1.5 years. I consider it as one of my early masterpieces because of just how sure I was that all the evidence is pointing towards good future gains. Yes, I had strong evidence.
Now, buying assets at a discount to NAV is a pretty good strategy if it satisfies some criteria:
1) there should be enough upside premium to be earned after conservatively marking down assets
2) there is a reasonably good chance that you as an owner can eventually realize this premium
Question. Does this apply to crypto?
Answer: Largely, no, it does not apply.
Back in December 2017, I was very bullish on DGD that I happily shared my pick after doing months of in depth research. I had a rather straightforward P/NAV value investing thesis on DGD. Now comes February and DGD starts to boom, and it doesn't stop til even in March and just keeps going higher and higher.
What did I do? I sold a pretty portion pretty much right at the top.
Since then, I've still held onto a fairly decent size of DGD until they started releasing out the governance and I saw first hand how the governance was working out. Spoiler: it's not good.
What we saw was a medium post with a full proposal to withdraw and use $20m of DAO funds that was up for a Carbon Vote.
I'm no math genius so I've used their math, but this means that each DGD is now only backed by ~0.2 ETH per DGD. That's an instant -13% in the "NAV" of DGD in ETH based on this one vote.
Sure, the funds will be spent on "stuff", but everything that the project done so far has been very depressing. Their gold backed token, DGX, is mainly only trading on Kryptono, which based on a very recent report, inflates their actual trading volume by 190X. Yes, that's not 190% (2 times). It's a freaking 190 times. I've eyeballed and compared the data with my own data on exchanges that I was collecting and analyzing just the weak earlier, and the report looks solid and corroborates a lot of my own findings.
What else? Well, circulating supply of DGX is only ~$2.6m, which is hardly enough to generate any fees to add on a DCF valuation. You don't need to trust me, you can verify. In the past half year of operating, they've managed to collect $6500 USD worth of fees. Those fees are to be shared among the token holders. Each holder gets $0.003 per DGD. They need more like $260m DGX in circulation to even have any impact.
Also regarding the governance - the tight supply of just 12/28 accounts controlling 51%/67% of the votes respectively also doesn't bode well with me, considering how they approved to sell ETH at the market bottom. Why not reject it and vote to disburse a smaller amount, like $2-5m? Why not force out a better and more elaborate budget and proposal? These oligarchs are either stupid or have an ulterior agenda. Either way, it does me no good.
So, what did I do? I sold off my remaining DGD positions at 0.22 ETH and 0.19 ETH respectively. Yes, those final positions booked a small loss relative to my entry positions. However, I overall made good profit considering the staggering amount of profit that I booked earlier in late Mar when DGD was peaking.
haters will say I'm lying, but I publicly post a lot of my moves
It's a less than ideal ending, but this is a good case study of why information needs to be constantly assessed to check that your investing thesis still holds true.
Learning points:
1) Few crypto can be valued on a NAV basis, unless they are explicit securities
2) There are no "forever" positions. Be willing to change your mind when circumstances change.
3) You have no idea when strong supporters of a crypto has dumped them (like me)
And regarding that last point, that's the problem with crypto eh? I've highlighted it before:
At the end of the day, I still do my own research, think very hard about the future, and I pull the trigger and make my own decisions on what to buy, what to sell, when and how much.
If you can't be critical on projects, accepting of flaws and open to new ideas, this space will kill you very quickly. Ideas a few months ago which I though were great, I have dumped and I now own zero. **COUGH COUGH KYBER COUGH COUGH**
That's the problem, ain't it? If you follow people to buy stuff, you are definitely buying it later and usually higher than them. And when they exit, you never know.
For people who blindly bought into DGD, just a final heads up that I truly hold zero of it now.
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