Don’t ignore the competition

Cryptocurrency investors usually only look at the investable landscape.  They ignore those projects that are hard (or impossible) to invest in.  This is a big mistake when considering an investment in a competitive industry.

When I talk to cryptocurrency investors, they often defend an investment by saying, “great team, great technology, real use case.”  I then ask, “who are their competitors and why do you think that this team will be the winner?”  Usually…silence.  Sometimes, the person will respond by naming other competitors with an exchange listed cryptocurrency or an upcoming ICO.  Never do they respond with competitors that have no cryptocurrency.

Consider Ripple (XRP).  XRP has numerous competitors with no tradeable cryptocurrency like R3 and Digital Assets Group.  To decide if XRP is a good buy, you have to look at the competitive landscape and decide why you think XRP is likely to beat out the competition.

Civic (CVC) is another example.  Great project, great team, but they have at least a dozen serious competitors, some of which may have greater traction.  CVC may be a great bet on the blockchain identity use case, but we can only conclude that after comparing Civic to its long list of competitors.

It’s important to remember that most cryptocurrency is open source, and so the value is based primarily on network effects.  When looking at new projects that don’t yet have meaningful network effects, we’re mostly betting on the team’s ability to quickly establish a first mover advantage in a particular use case.  Making that call requires evaluating the level of traction the competition has achieved.