Thread by @0xjunkim

Investing in/debating the quality factor will be increasingly meaningful as the market matures in crypto. Among some metrics, "earnings growth," most importantly, has been made viable to study for crypto thanks to @tokenterminal, a quick thread(nfa, strictly personal opinion)👇

@tokenterminal (1/n)So quality factor investing means that you are putting your money in a sound business. In stock market examples, you look for the companies that have enough cash to survive in a recess, those with systemically dominant market shares, strong dividend payouts/growth, etc.

@tokenterminal (2/n)Value investing may sound more familiar which is in the same context, where you’re looking for long-term fundamentals rather than short-term market opportunities. Warren Buffet seems he was always smart enough to find the so-called undervalued stocks in any given timeline.

@tokenterminal (3/n)In his sense of value investing, BTC has no fundamental value. This is true because the great asset has no cash flow unlike stocks or real estate. With a stock, you get dividends(and the company makes real world money) and you get rents from the building if you’re the owner.

@tokenterminal (4/n)In other words, cash flow is what you need if you want to find out something is actually over/undervalued. So with no cash flow, no valuation and BTC has 0 value in this context. But if you think about it, there are many things like this: oil and gold are perfect examples.

@tokenterminal (5/n)If you’ve ever read commodity market reports for oil or gold, they are basically reading the charts like we do for BTC on Binance and make bare estimates based on global demand/supply. In other words, there is no quantitative valuation like for stocks on gold, oil, and BTC.

@tokenterminal (6/n)But ofc I’m not writing this thread to say that BTC has no value. What do we have besides BTC? ETH, of course, and many other alt coins that have been rising and falling for the past couple years. Below is quick example you see on @tokenterminal on ETH:

@tokenterminal (7/n)Long story short, we want to find out which project is 1. actually making the money 2. and the amount of money it makes is becoming larger. In other words, naively looking at the current static ranking of earnings may not mean much. We want earnings that grow (again, nfa!)

@tokenterminal (8/n)The Earnings metric on @tokenterminal's data is calculated by adding up a project’s Revenue and subtracting the Token Incentives(emissions). This is similar to rights issues in stocks(it dilutes your shares). Personally had this idea for some time so I was delighted.

@tokenterminal (9/n)I’m not listing up specific projects in this thread, but there are already many studies out there like “real yield analysis,” etc. What is exciting is that the data vendors like this are contributing to the market to mature, further with the leading investors and projects.

@tokenterminal (10/n)You may not find so many satisfying results, though. Some crypto shortcomings do exist such as the token economics not actually giving out the earnings to the holders, or just that not many projects are making actual earnings in the prolonged bear market/missing pmf.

@tokenterminal (11/11)However, the frustration may mean that we can still become the pioneers. If you’re reading this, chances are you’re one. And I’m sure 2023 will be one of the most meaningful year of building in the hindsight (Personal goal is not to look at the price so much, tbh). #buidl