Why a small market cap doesn’t mean a bargain

For education only, not financial advice. The $10,000 example, the return multiples and the 80/20 split illustrate how Viv thinks about risk; they are not a recommended allocation for you. Bitcoin, Ethereum and Solana are named as examples only. Viv describes his own approach, which reflects his own experience and circumstances, and is not suggesting anyone copy it. Crypto assets are highly volatile, past drawdowns don’t predict future ones, and you can lose all the money you invest.

The question

Hi, I'm Viv, and welcome to my notebook.

Here's something I've noticed many people struggle with. Is it better to buy established assets, large-cap cryptocurrencies, or small-cap projects?

If you're investing in crypto, one of the biggest decisions you have to make is whether to put your money into established assets like Bitcoin and Ethereum, or look further down the market for smaller projects with potentially much bigger returns.

My view: it's not really an either-or decision. For most investors, I think the mistake is starting with the question, what would make me the most money? I'd start with, what am I actually trying to achieve, and how much risk am I prepared to take to get there?

What established assets give you

Established assets give you something very important: a long track record, deep liquidity, greater market recognition, and in the case of Bitcoin, a much stronger investment thesis that has already survived multiple cycles.

That doesn't mean they can't fall dramatically. They absolutely can, and do. But there's a difference between volatility and uncertainty. With an established asset, you may have a better understanding of what you own and why you own it.

What can go wrong further down the market

With a small-cap project, the potential upside can be enormous, but so can the number of things that can go wrong. The technology might not work as expected. Adoption might never materialize. Tokenomics might be poorly designed. The team might fail. Liquidity could disappear. Or you might simply be early to an idea that never becomes commercially relevant.

And that's the part many people sometimes overlook. A project being small doesn't automatically mean it's undervalued. It might simply mean the market has correctly identified that the probability of success is low.

Crypto as a risk spectrum

So personally, I prefer to think about crypto as a risk spectrum. I would build the foundation around assets where I have highest conviction. And then, if appropriate, use a small allocation for asymmetrical opportunities, where I believe the potential returns justify the additional risk.

And there's an important distinction here. I'm not necessarily looking for the coin that can go up a hundred times. I'm looking for the risk-adjusted opportunity, where I believe the market may be underestimating the future value of the network, the technology, or the business model.

The uncomfortable questions

That means asking some fairly uncomfortable questions. Is there a real problem being solved here? Does the token actually need to even exist? Is there evidence of adoption? Does the team have the capabilities to execute the plan? Is the valuation already pricing in perfection? And perhaps most importantly, what would make my investment thesis wrong?

Because I think that's how you separate investing from speculation.

What the objective actually is

So, is it better to buy established assets or small-cap projects? For me, I believe for the majority of people, established assets are the foundation. Small-caps are where you can potentially add asymmetrical upside, but only if you're prepared to accept that some of those investments will likely fail.

The objective isn't to own the asset with the biggest possible return. It's to build a portfolio where the winners can meaningfully move the needle without one bad decision having the power to destroy your capital. And in crypto, I think there's a much more sustainable way to think about opportunity.

Working it through with a number

So here's where I stand. A lot of it depends on what it is you're trying to achieve.

Let's say, for argument's sake, you're investing $10,000. Are you looking to get a 2 or 3x return? If that's the case, then perhaps you will be able to achieve that by buying into some of the major-cap, most well-known crypto projects. They're less volatile, the likes of Bitcoin, Ethereum, Solana, and the like.

But when I say less volatile, even these projects can have the volatility of a 50% drawdown, which is still huge, and that has happened even in recent times with the biggest established crypto. And so if you can't accept that volatility, you should not be investing in the crypto space at all.

If you want bigger returns than 2x, 3x, say 5x to 10x, maybe even 20, then it's highly likely you're going to have to go further out the risk curve. But of course, then you're taking even bigger risk and, of course, massive volatility. These projects, even well-established projects that have been around for years, can still have drawdowns of 80% to 90%.

Can you stomach this? Or would you sell at a loss? And how can you ensure that if you are going to take this risk, that you will be able to stay in the market?

Staying in the market, and where I sit

For me, I think it's hugely important that, number one, you understand what you're buying, that you believe it has long-term, that it's got a lot of factors that show you it has a huge chance of being successful. And while that doesn't guarantee the outcome you're looking for, it certainly mitigates some of the risk and gives you the chance to make those outsized returns.

And so, depending on what you're trying to achieve and the amount of money you're looking to put in, you should consider: do you want to put 100% of what you have in those major caps? It's safer in a very risky space. Or are you willing to perhaps go further out the risk curve? Maybe that means putting 80% into the major caps and putting some percentage into further out the risk curve.

For me personally, I like going further out the risk curve, but I do that because I believe I have an in-depth knowledge, much experience and great contacts in the space to allow me to take what might seem like greater risk, but I'm mitigating that risk with that knowledge and that experience.

Closing

What is your take on all of this?

Thanks for taking the time to listen to my take. I’d genuinely love to hear your thoughts. So if this notebook sparked something for you, leave a comment below and let's continue the conversation.

And I'll see you in the next notebook.

This entry puts established assets and small caps on one spectrum. If you think the line falls somewhere else, or that one of those questions matters more than the rest, say so below. The questions that come back here are where a lot of these entries start.