The Tie Research

Web3 Weekly 12/3: AltCoin Vigilantes, Saylor Mania, Sentiment is King

By Jack Melnick
April 18, 2023

Rugseekers, the People's Champion:

Everyone has a different reaction to their first bad investment.

Some people react by moving into safer assets. Some by doubling down on a yet riskier bet to try to recoup their losses. Some, apparently, form vigilante task forces - and I quote - "patrolling the darkest corners of the crypto world for Shit Coin scammers."

In reality, RobAte25 and his crew are actually trying to formally provide a very valuable service for crypto newcomers: helping identify potentially devastating scams. Sometimes, in the bubble of knowledge, it's easy to write off just how easy it is to take advantage of the very group it's in our collective interest to protect.

Getting rugged is something of a right of passage in Crypto. Almost everyone has it happen at least once, from investing in a fraudulent coin to connecting a hot wallet to the wrong site. At the same time, these experiences are both huge potential deterrents for those curious, but uneducated about Web3, and as a point of emphasis for those that seek to marginalize digital assets.

This, again, ties into the regulatory battle with disclosure around cryptocurrency. How can you reconcile the right of the individual to proper knowledge against the right of another to anonymity, particularly when so much of the market is in fact speculative? Is it the job of the investor to learn to fully understand smart contracts and argue in Telegram groups to get basic information? So much of what we take as standard, actually makes very little sense.

It seems impossible to continue down a route of no disclosure; it will too quickly get shut down by regulatory agencies, and is actually antithetical to the transparency on which blockchain is built. A potential solution could be to find a way to incentivize new projects to provide some basic level of disclosure- even if just as simple as ensuring quality of smart contract before DEX listing to prevent easy scams. This would easy filter out the majority of the forked fraud, but curious what other creative mechanisms are out there to address this.

Sentiment is King:

I don't think I'll be breaking any news when I say that Cryptoassets tend to trade more on sentiment than fundamentals, particularly when compared to traditional markets. Our data team here at The TIE sought to explore that idea further, breaking down sentiment into five quintiles (5 - Best, 1 - Worst).

The strategy used was simple: Buying the Top 20% highest sentiment coins and holding them for a day before selling returned 1,907.01% YTD, excluding gas, with a 3.41 sharpe. Basically, buying the highest sentiment coins this year has nearly a 20x outperformance against Bitcoin, which has a YTD return of 98% and 4x the outperformance of Ethereum's 486% YTD.

Saylor's Bitcoin Mania:

Michael Saylor's company, Microstrategy, made the news again this week for their purchase of $414mn of Bitcoin at ~$59,000. For those counting (not me), that brings their total purchased up to a whopping 121,044 BTC at an average price of $29,534. For those doing the math (me) that means Microstrategy has lost $42mn on this trade so far, which is pennies compared to the approximately ~$3bn that they've taken home so far.

That said, Microstrategy is an Enterprise Software business. It feels intuitively odd that someone who was working for what they thought was one company, is suddenly now receiving lots of exposure to an asset class and ecosystem that they could have no interest in. Saylor has even gone as far as to engage in a "program to sell $1 billion worth of additional stock, proceeds from which can be used to acquire [more] Bitcoin." Saylor claims that the move into BTC and accompanying press has resulted in happier employees and better shareholder returns, which, again, feels weird. If they wanted to get better returns with higher risk, couldn't they just invest in Bitcoin themselves?

Saylor appears to be correct though (yet again putting intuition to shame). He notes:

“[This move] has increased the power of the brand by a factor of 100. We just had our best software quarter … in the last 10 years,” he added, noting total revenue was up 10% year over year... MicroStrategy’s stock has soared since the company announced its maiden bitcoin buy before the bell Aug. 11. The shares have risen around 423% from its Aug. 10 close to Friday’s closing price of $646.46. The stock hit a 52-week high on Feb. 9, trading above $1,300 per share, which was its highest level since the dot-com boom.

Turns out if you're an eccentric software CEO the winning strategy is to do whatever you want and just roll it into your brand identity. Kudos to Saylor - I wish I could pull it off.

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Jack Melnick

Jack Melnick

Jack Melnick, Author at The Tie

VP of Research
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