Why I don't like investing in hyped projects
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
I am a quadruple-outlier:
Most investors don't invest in startups.
Most startup investors don't invest in crypto.
Most crypto investors don't invest in NFT projects.
And... most NFT investors follow the hype.
👇
I buck all four of those trends. I invest in startups that are using NFTs as a funding model. Those are the projects I like to hold and trade. I might dabble in other things, if only to be open minded, but that's my sweet spot.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
I'm not sharing these thoughts to convince you to invest like me. Do what you want and be happy.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
I just hope that seeing another investor's thoughts deconstructed like this might help you define your own, personal approach to investing in NFTs, and perhaps other things.
I'm not a madly successful NFT investor anyway. You can see all my investments on https://t.co/aGCjv0EbQT and it should be pretty clear that I'm not the next Warren Buffett.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
So take this thread as what it is: someone else's thoughts, to do what you will with.
With that out of the way...
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
The NFT space as it exists today is a giant hype machine, and projects that manage to harness the hype are the one that typically get massive multiples in very short amounts of time.
Investing in hype *seems* like the path to riches.
Hyped projects are better at grabbing attention, whether by paying shills or just good salesmanship or otherwise, and they turn that attention into outsized returns that draw even more people into the NFT space with dollar signs in their eyes.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
That's fine. People are grown-ups and if they enjoy playing those games, it's up to them. I don't judge.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
Ignoring the hype is hard, if only because of the FOMO it generates. I reviewed Alien Frens at mint time. I passed, hard - no substance, all hype.
I still hold to that view. But in the meantime, Alien Frens peaked at something like 3.4 floor. If I'd minted a few of those it would have been a very profitable move.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
And yet I'm still comfortable with my decision to pass. pic.twitter.com/JuItnyJ7hM
Btw, if you like this thread, you can find more like it at https://t.co/X91GS2GKld - and also I would appreciate if you retweeted this so more people see it.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
There are several problems I have with hype-driven projects.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
First of all, they're often empty of substance. I passed on Alien Frens because there's nothing there but hype. The roadmap seems lifted straight from my list of roadmap antipatterns: https://t.co/A5k3yblLwI
I don't like investing in sth that's fundamentally worthless, b/c there's no way to value it.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
"But the community is great" Even though I'm a big fan of club mechanics ( https://t.co/q1lKcNcz5w ), I think they have to have some kind of focus or niche. Alien Frens has none afaict.
Alien Frens has hype, and hype has its benefits to NFT projects. There's a truism in the startup world that it's better to close your funding rounds pre-revenue. Why would that be? Surely having tangible revenues would boost your valuation?
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
Well, no, because: dreams > reality.
A pre-revenue startup can claim any revenue model it wishes, and there's no way to verify it. Smart investors will still apply several coats of scepticism, but pre-$$$ startups do tend to attract loftier valuations. Basically, they trade on hype too.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
An NFT project with no benefits can use the same technique - keep pushing back value until later. By the time later comes around, there's probably a new round of suckers who believe in the hype again. Or not, in which case the founders just move on and do it again elsewhere.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
Startups can't do that - VCs and angels won't let them. But we let NFT projects get away with this, for now, so they can keep this game going. But not forever.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
I believe pure hype projects, eventually, are going to trend to zero, to reflect their actual value.
You might argue, "but there's a benefit to having a PFP that's that of a super hyped project like Alien Frens". Yes, sure, there is - but only while the hype is there. What's the use of sporting the PFP of a long-dead project? Nostalgia?
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
Once the hype dies down, Alien Frens is a historical curiosity with no intrinsic value, one of many PFP projects following the "cute" style pioneered by, I think, Cool Cats, pumped up by influencers, and then, eventually, forgotten.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
It might still have value, but not 3E of it.
Which brings me to the second reason I don't like superhyped projects: they go up and down like yoyos because of the hype. That makes them good trading opportunities, but as an investor I don't like the unnecessary volatility.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
A bit of hype is fine. The occasional minor pump is helpful to derisk by selling some of my early purchases so I can ride the rest to wherever the project is going. But if the project is a mad rollercoaster, it's a project for trading, not investing.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
I know many people who are skilled traders, and so those projects might be great for them, but that's not my shtick. I find it too stressful to do every day. So that's a second reason for me to avoid hype-driven projects: they're too much work for me and I'm lazy.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
I like the fact that NFT projects are *way* more liquid than share investments. But I don't want to *have* to look at them every day, in fear that I'll miss a good trading opportunity.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
By investing in long-term-value projects, I can basically invest and forget.
A third reason I like investing in long-term value projects is because of my sense of personal purpose. I like to feel like I'm contributing something of value to the world. And investment can be a way to achieve that.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
I get that you can make a chunk of money from trading hyped projects. I've even written about it ( https://t.co/sbjVT64gHG ). But where I'm at in my life, money is not enough. It may be for you, and if so I'm absolutely not judging you for that. Go make money!
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
When I invest in something that I believe is of value, I am basically putting my resources in it to help achieve its potential. When it then achieves its potential, I can feel good about myself for having contributed, even if just a little.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
If I make money from trading hot garbage (which I might at some point, because temptation is a thing and I'm human), it's a zero sum game. No, a less-than-zero-sum game, because the makers of the hot garbage get to walk away with the royalties.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
Because I invest in things I believe have value, I can talk about it honestly, without feeling like I'm shilling stuff. Trading hot garbage is zero-sum, because there's no value being created.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
Investing in potential value creates more value to be shared. (3,3) fr.
The fourth and final reason why I invest in long-term value is it's simply less risky.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
If I buy in at a sufficiently low entry point, near the beginning, even if I overestimated the project's potential, the investment will probably not be a write-off.
If I buy into the project during pre-sale and get, say, 5 NFTs for 0.05, and in my mind this NFT project will probably go above 1 Eth, maybe much higher than that.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
In order to derisk, I don't actually need the project to get to 1 Eth.
Depending on how it's doing post-launch, I might sell one at .25 if that price is reached - then the last 4 are a free ride and I can forget about them for a few months.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
Or sell 2 at .125. Or 3 at 0.85. You get the idea. It depends on how well the project does.
Sometimes I'll certainly get this wrong, and a project I thought was going to be ok will crater immediately after launch and not allow me to derisk. Well, welcome to startup investments. In the non-NFT startup world, that happens to over 90% of investments.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
Less-hyped projects are easy to get at mint, especially if they go for a slow mint approach ( https://t.co/Qe2g4Nz2KI ). Hyped projects are always a bit stressful, as everyone is working out how to trade them, whether to flip, etc.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
If a hyped project doesn't sell out and rocket up after mint it's usually considered somewhat of a failure. But if I minted because I believe in the long term value, I don't care much how long it takes to mint out, or whether the price fluctuates early on.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
When I minted @crypto_coven (disclaimer: https://t.co/WWQ10yPYCN ) I expected it would take 6 months to mint out, but I didn't care because I saw the value. They minted out much sooner? Great. But I would have been happy with a 6 month wait too.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
That attitude was only possible because I was investing in what I perceived to be the long term value of the project, rather than hype. So, it's another reason for me to prefer less hyped projects: their success doesn't hinge on a successful launch, so they're less risky.
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
This thread has gone on long enough, so I'll close it now. I hope it is helpful to see how someone else thinks about investments. I might do another thread about entry and exit prices at some point. Please let me know if you found this helpful :-)
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
TL;DR: I like investing in long term value over hype because:
— Daniel Tenner (swombat.eth) (@swombat) January 13, 2022
1) pure-hype projects trend to 0 in the long run
2) long term value -> less volatility -> less stress for me
3) feels better to my soul
4) I think it's less risky
gm & gl