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  • 💡 How high can your coin go?

💡 How high can your coin go?

PLUS: The DOJ moves BTC

GM everyone. This is 2036. We scroll for gems all day so you don’t have to.

Here’s what we’re serving up today 🍲: how high can your coins go? And when should you consider selling?

Let’s dig in.

In December 2023, I shared my investment strategy for WIF (dogwifhat) in Enter, Earn & Exit.

At the time, $WIF was $0.27.

The thesis for buying WIF was simple:

  • most people don’t own memecoins because they “lack utility” (but memecoins are culture)

  • there are only a handful of memecoins that you can invest in with size - like DOGE, SHIB, PEPE, BONK, and WIF.

  • Out of all of those, WIF is by far the most viral and mispriced.

  • SHIB hit a market cap of $40B in the previous bull market.

  • If we assume SOL could reach a $500 billion market cap in 2024 (based on a similar market cap for Ethereum in the 2021 cycle), WIF could reach a $10-$20 billion market cap, maybe more - similar to Dogecoin today.

So far, WIF is moving nicely along the chart I shared earlier this year, though at a much faster pace:

But what’s important here isn’t WIF— but the method for identifying price targets for your investments.

Most people don’t have price targets at all. They buy and pray it goes up tomorrow.

And others have pie-in-the-sky dreams based on what would give them financial freedom.

However, in the vast majority of cases, it pays to base a price target on something realistic and tangible.

That doesn’t mean it’ll be perfect—we’re trading magic internet money, after all—but it gives us a framework for thinking about potential.

For most tokens, the best way I’ve found to do this is to compare their market capitalization to their peers’ peak from either the current or last bull market.

To have an idea of their potential, we compare things all the time:

  • bitcoin → gold ($15 trillion market cap)

  • a crypto game → Illuvium ($1 billion) or Axie Infinity ($10 billion)

  • a new Layer 1 (like Sui) → Solana ($82 billion) or Ethereum ($430 billion)

For example, WIF’s potential valuation (and price) is rooted in SHIB’s peak market cap in the previous bull market.

But take Stacks (STX), a Bitcoin Layer 2 I’ve talked about a lot before.

Here’s some back-of-the-envelope math based on the valuations of Arbitrum and Optimism, Layer 2s on Ethereum:

The valuation assumes that:

  • The five Layer 2s (OP, ARB, etc.) on Ethereum are worth a combined 10% of the value of Ethereum.

  • In the bull market, bitcoin could reach a valuation of $2.5 Trillion = $125,000 per BTC (that’s the box, “ATH FDV for the next bull” 👇)

  • That means Layer 2s on Bitcoin should have a combined FDV of 10% of that - $250 billion.

  • If there are 5 Layer 2s on Bitcoin as well, each should be worth roughly $50 billion (although only one exists so far - $STX - and none of them will have as many tokens already sold to relieve the selling pressure)

That gives us a potential fully diluted valuation (FDV) for Stacks of ∟$50 billion.

Like I said, this isn’t perfect. And it doesn’t have to be. But it helps us ground our thesis in reality.

And if the facts change, you can adjust your expectations accordingly.

Ok, so if you have an idea of how high your investment can go - when do you sell?

Answer: when the gap between your target and the price narrows enough that the risk you’re taking doesn’t justify the diminishing rewards.

My thesis for WIF was as true at $0.27 as it is today.

Sure - WIF could hit $40-$100. I don’t know. 

But after we reach $10-$20, you might find better risk-adjusted returns elsewhere.

Because the goal is not to time the top but gradually sell as we approach the point of diminishing returns - that could be a time to sell unless the market fundamentally changes (which could cause us to revise our numbers up or down).

In the meantime, it pays handsomely to stick to a thesis, let time do its job, and ignore all short-term noise.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.