We’re firm believers in investing in good projects with long-term upside — projects that can survive multiple bear markets, thrive in bull markets and deliver outsized returns over the long run.
Finding projects like that with solid traction is even more difficult. As is finding good projects with a critical use case. But they do exist. That’s why I’m recommending Ethereum Name Service (ENS) today.
Solving a Major Problem
Crypto is stored in digital wallets. And each wallet has a unique identifier that functions like an address. Bitcoin wallets are identified by a string of 27 to 34 characters. Ethereum wallets are identified by 42 characters (including the 0x prefix).
In order to move crypto from one place to another, crypto owners have to type in their wallet’s address AND the destination wallet’s address. A single mistake means sending your crypto to the wrong address with little recourse for fixing the mistake. That is NOT a user-friendly experience.
ENS solves this problem by letting people create domain names for crypto wallets. So instead of using a wallet with the address of 0xe1a2r3l4y5i6n7v8e9s0t1i2n3g4f5i6r7s8t9s0 to send or receive ethereum, people could use a wallet with the address of Vin.eth or Allison.eth. And ENS domains can receive and store a wide variety of coins (including bitcoin and ethereum), tokens and NFTs.
The difference between human-friendly wallet addresses and the current wallet address system is immense. ENS’ solution makes crypto much friendlier and easier to use. It reduces the potential for errors. And it allows people to personalize their crypto experience.
Real Traction
Almost 1.7 million ENS domain names have been registered so far. And the costs for ENS domains — much like web domains — vary. Shorter ENS domains tend to be more expensive than longer ones. And ENS domains that match up closely with existing brands tend to be more expensive than ones that don’t. A few weeks ago, someone tried to buy amazon.eth for $1 million on OpenSea. The seller didn’t accept the bid. But a $1 million bid for an ENS domain shows how far ENS has come since its 2017 launch.
Another way to look at ENS’ growing popularity is by estimating the revenue generated from domain sales thus far. Let’s start off by assuming each domain costs $5. (Many domains cost much more. But this minimum cost is a good place to start.) At $5 a domain, ENS has generated AT LEAST $8.5 million in revenue over the past five years. That’s pretty good for a startup in a nascent industry.
A Bright Future
As crypto continues to go mainstream, ENS domains are well positioned to play a critical role in the ecosystem. In addition to simplifying wallet addresses, ENS domains are set up to become a single profile people can use at a host of Web3 sites. The closest web comparison to this feature is signing into a site using Google or Facebook. So as more people enter the crypto ecosystem, the incentive to use ENS domains will be quite high.
The Right Time to Buy
There are two plays to consider if you invest in ENS right now. The long-term play is fairly straightforward.
The current bear market has created buying opportunities. Good cryptos are available for relatively low prices. That’s definitely true for ENS, which is currently trading around $15 after beginning the year above $39. The value ENS brings to the crypto ecosystem is immense. User adoption is only going to increase. So the future is bright for this project.
The short-term play is what makes investing in ENS right now extremely interesting. Ethereum’s merge date — when it switches from a proof of work protocol to a proof of stake protocol — is slated for September 19. That should provide a nice short-term price boost for ethereum and ethereum-based projects like ENS.
Rules of the Road
When you buy ENS, you’re investing in the governance token for the project. These tokens get traded by investors, so they’ll generally move up and down based on the success of the project and how the markets are performing. But the token also provides holders a way to vote on the direction of the ENS DAO (decentralized autonomous organization) and changes they’d like to see in the DAO.
Additionally, investing in a bear market is tricky. So…
- Do not invest money you can’t afford to lose. The markets are in for a rough ride. And if you can’t afford to lose the money, you shouldn’t risk it.
- Focus on projects with strong use cases.
- Look for teams or communities that are active and committed to their projects.
- Always enter a position using dollar cost averaging. That means buying a small amount each week rather than buying your entire position at once. That way, if prices continue to fall, you lower your overall acquisition cost.
- Don’t try to time the market perfectly. Nobody can. And I believe this bear market will be around for several months. So if you want to wait, that’s perfectly okay. But when you do invest, make sure you utilize dollar cost averaging to buy into the market.
- Diversify your crypto portfolio. From a percentage standpoint, bitcoin and ethereum should be the biggest investments in your crypto portfolio. But you need exposure to a much broader and more diverse set of coins to take advantage of the full upside of the crypto markets. Bear markets are a good time to diversify the portfolio and increase exposure to different crypto sectors.
The easiest way to buy ENS is through Coinbase Pro. Make sure you understand your time horizon for investing in this coin. And remember, investing in crypto is risky. Don’t invest money you can’t afford to lose.
That said, I believe ENS offers an attractive risk-reward ratio.