This month’s crypto recommendation is highly unusual — at least for us. Today I’m recommending a coin that’s already part of the Crypto Asset Strategies portfolio. And it’s the first time we’ve ever done that.
Background
We recommend small cap altcoins to our Crypto Asset Strategies members (click here to sign up). These investment opportunities are more speculative than the large cap coins we recommend to First Stage Investor members. They’re typically linked to projects that are just beginning or in the early stages of a new crypto technology or sector.
The additional risk you take on for investing in small cap coins can come with significantly higher returns than large cap coins. The potential upside of nascent projects is typically higher than the upside of more mature ones. The hope and goal for all of the coins in the Crypto Asset Strategies portfolio — beyond big gains — is for them to become large cap coins. Because if you go from small cap to large cap, you’ll likely see outsized returns.
Cosmos (ATOM), the coin we’re recommending today, has made that journey from small cap coin to large cap coin. We first recommended this coin to Crypto Asset Strategies members in the fall of 2020 when it had a market cap of around $1 billion and was trading at $5.15. Today, it has a market capitalization of more than $3 billion and is trading around $10.56. That’s a more than 100% return so far.
Use Case and Traction
Here’s how Early Investing co-founder Adam Sharp described Cosmos when he recommended it in 2020:
The goal of the Cosmos network is to build an “internet of blockchains,” making it easy to create highly customizable blockchains and then trade and communicate between them. In essence, Cosmos is a speculative bet on a future where there are multiple cryptocurrencies and tokens being swapped constantly. Those tokens and cryptocurrencies would communicate with each other via Cosmos and use the ATOM as a medium of exchange and staking reward.
Cosmos’ vision has proven out. With so many blockchain ecosystems out there, the need for chains to communicate and move assets from one to another is constantly growing. Cosmos now has $61 billion in digital assets under management and is being used in more than 275 apps and services.
Why Now
Last September, Cosmos was trading for more than $16. In February, it was trading for more than $15. It hit its all-time high of $44.70 in 2021. I believe Cosmos will be a strong performer during the next bull run, and anything in the vicinity of $10.50 is a good buy.
Because market conditions are uncertain, Cosmos’ price could certainly drop. In fact, I’d be surprised if it didn’t. But as I say repeatedly, timing the market is a fool’s errand. So if you’re going to add Cosmos to your portfolio, you should dollar-cost average into your position (buy a small fixed amount each week until you acquire your entire position). That way if the market goes down, you can take advantage of the price drop and lower your effective purchase price.
Remember, we’re in the middle of crypto allergy season, so big market swings are normal. And many altcoins will struggle. So prepare to hold on to Cosmos for at least six months to a year. I believe it will take at least that long for the next bull market to begin. And when that next market surge happens, keep an eye on Cosmos. I believe there might be a few opportunities to sell or take some profits. And that makes this a really good time to add Cosmos to the First Stage Investor portfolio.
Rules of the Road
This is a tricky market to invest in. But it’s important to be opportunistic. So if you have capital to invest — and you’re psychologically and emotionally willing to enter what promises to be a highly volatile market — here are some guidelines to follow.
- Do not invest money you can’t afford to lose. If you can’t afford to lose the money, don’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 fall, you lower your overall acquisition cost.
- Don’t try to time the market perfectly. Nobody can. 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.
Remember, investing in crypto is risky. Less than 5% of your overall portfolio should be invested in crypto. That said, I believe Cosmos provides an attractive risk-reward ratio.
Cosmos can be acquired on Coinbase.