Applying The VC Model To Cryptocurrencies

Karan Choudary
Dec. 8, 2017  •  1 min read

Most of the world has heard about Bitcoin's rise to power by now, and with hundreds of new cryptocurrencies emerging every day, the question on everyone's mind is: which one is next?

How can we pick the next 10,000% return coin that will realize our financial freedom, and have us all driving lamborghinis -- all while avoiding the many scam coins and flops out there?

The answer: we don't. We just invest in all of them.

"But won't we lose any money earned in the good picks to the bad picks?"

Let's analyze this like a venture capital firm for a moment. In Zero To One by Peter Thiel (a highly recommended read, by the way), Thiel mentions:

"The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined."

Let's do some rough calculation: If we invested $100 in Bitcoin in 2013, the current market value of those coins would be $1,000,000 right now, which means we could've invested $100 in 10,000 different currencies, and as long as Bitcoin was one of them, we would have still broken even.

And that's assuming every single other currency went down to zero. Now assuming we filtered our selection by market capitalization, and only chose the top 100 currencies, that's minimum $990,000 profit from a $10,000 investment! See what I'm getting at?

Now let's take a look at what our choices are today.

There's roughly 500 cryptocurrencies on CoinmarketCap with a market cap of $1 million USD or more, anything less than that and I'd probably be a little suspicious unless I personally knew the founders.

Suppose we put $100 in each of the 500 for a total of $50,000 investment. All we would need is one coin to replicate a fraction of Bitcoin's success and we've broken even.

Now, I'm not saying this is likely to happen, perhaps Bitcoin was unique in being one of the first, and the party's over.

But looking at the total market cap of cryptocurrencies over the past decade, it took about 3 years to get to a total $200 billion market cap, and only 3 weeks to go from $200 billion to $300 billion. Even then, $0.3 trillion dollars is a drop in the bucket compared to the $30 trillion dollar foreign currencies market, so I'd say there's still a lot of potential to grow.

As with any investment, make sure you do your own research before you buy, and let that investment rise!