- Titan CIO Clay Gardner says it’s “altcoin season.”
- “We see a lot of institutions leaping bitcoin entirely,” he told Insider.
- He shared 4 altcoins he’s bullish on, and how to conduct thorough analysis on cryptocurrencies.
At this early stage of the game, chance seems to play more of a role in crypto investing than in, say, stocks.
The space is still developing, so it can be hard to pick winners. Even its most-adopted assets experience high levels of
volatility
relatively often. And seemingly pointless projects can soar (see: shiba inu, dogecoin, etc.).
But according to Clay Gardner, the CIO and co-CEO of Titan, an asset management startup that now manages what Gardner says is “close to $1 billion,” it’s important to take a rhyme-and-reason approach to investing in the digital assets, especially when it comes to longer-term timelines.
In a January 7 interview, Gardner shared with Insider his five-step process for conducting “Warren Buffett-like” analysis on cryptocurrencies. Buffett is known for finding success by investing in firms with strong fundamental tailwinds and impressive cash flow. Coca-Cola and Apple are two examples of stocks he’s made big money on.
Although Buffett’s approach to stocks may translate to crypto, the Oracle of Omaha has been hugely skeptical of digital currencies. In 2020, he told CNBC he had never owned any cryptocurrency and “never will.”
How to do Buffett-like analysis on cryptocurrencies
First, Gardner said to look at a project’s use case, and ask whether it’s solving a problem. In other words, what is its value proposition — how dispensable is the product?
Second, he looks at how widely used a product is, and how much its use is growing. To measure this, he looks at metrics like daily active users and total value locked.
Third, Gardner looks at whether or not the project makes money.
“What is the token distribution mechanics, how are the tokens distributed, what does inflation or deflation look like for the protocol, are the founders owning tokens or selling tokens?” he said.
Fourth, Gardner looks at the management team of a project and how serious they appear to be about growing it.
“While there are thousands of analysts that track Apple every day, and they know Tim Cook is the CEO and know a little bit about the management team, for a lot of crypto projects the founders are anonymous or it can be difficult to track the team,” he said. “But if you’re creative and thoughtful about it, you can jump into
Discord
groups or track different communities on Twitter, and at least get to know what makes the teams of projects’ founders tick.”
Finally, he said he looks at a project’s valuation, which he measures by dividing its market capitalization by a metric like revenue.
He gave an example using ethereum (ETH).
“ETH, when we first looked at it, had a
market cap
of $450 billion. It had generated $18 billion in annualized gas fees over the last 30 days. And so if you just divided those assets into each other, you get an asset that’s trading at roughly 25-times sales,” Gardner said. “And so if you think about high-growth software companies that are trading at 25-,30-, 40-times sales that are growing much slower than ETH, that’s sort of a compelling analog that you can make.”
4 altcoins to watch
Gardner is more bullish on layer 1 smart-contract blockchains than bitcoin, and believes they have upside over the next 3-5 years.
“It’s altcoin season,” he said. “We see a lot of institutions leaping bitcoin entirely and jumping straight to other layer 1 protocols.”
Gardner is most bullish on ethereum, which he said is Titan’s most overweight crypto asset.
“It’s the largest decentralized blockchain. Businesses are actually powered by it now. Its the most battle-tested blockchain in the world,” Gardner said. “Our view is that the security layer of ETH will anchor the next iteration of the internet, what people are calling Web 3. It’s outperformed bitcoin on pretty much all metrics we’re looking at — number of users, transaction volumes settled, fees generated.”
He added that it has positive catalysts ahead, including the ETH 2.0 update, increased institutional adoption, and the potential approval of an ether ETF.
In addition, Gardner said he likes Avalanche (AVAX), Terra (LUNA), and Solana (SOL). These protocols, like ethereum, are smart-contract blockchains, but are currently less-adopted.
“2021 was the year of the flippening, in our view. And what I mean by that is the top layer 1 protocols — ETH, Terra, Avalanch, Solana — the percentage of crypto market cap they represent, flipped versus bitcoin. It went from below 50% to above 50%,” he said. “We see a lot of institutions leaping bitcoin entirely and jumping straight to other layer 1 protocols.”
In the near-term, Gardner said that Fed tightening and rising interest rates present headwinds for crypto, but that it doesn’t change their bullish views on the space in the longer-term. He also added that it’s a possibility investors have already priced rising rates into crypto, and that the current sell-off could largely be over.
