The collapse of bubbles and tightening liquidity have left many investors reeling. As we examine the performance of prominent figures like Cathie Wood (ARK Invest) and Warren Buffett, we find Wood's returns have retreated over 60%, while Buffett's portfolio remains remarkably stable. What insights can we gain from this contrast?
The Rise of Value Investing
Imagine Benjamin Graham—the father of value investing—stepping into 2022 with an Apple Watch, opening a CeFi or DeFi cryptocurrency trading platform. He might smile knowingly and say, "Don't panic—I've seen this before."
In the 1920s, the U.S. stock market was far less mature than today's bond markets. It was a nascent space dominated by traders rather than investors, where technical analysis and momentum chasing prevailed. Graham entered this market early, analyzing company financial statements with remarkable success—achieving over 100% returns and multiplying his fund's value sixfold in three years.
During these "Roaring Twenties," ordinary people dreamed of overnight wealth through stock market fortunes—much like today's crypto enthusiasts pursuing memecoins and altcoin pumps.
The Crash That Changed Everything
By 1929, Graham was a millionaire (equivalent to today's billionaire status). Then came Black Thursday—October 24, 1929—when markets collapsed, triggering the Great Depression. Graham's fund lost 70% (better than the market's 74% drop, but devastating nonetheless). This experience led him to develop value investing principles, formalized in his seminal work Security Analysis.
Key components of Graham's original formula:
V = EPS × [8.5 + (2×g)]
Where:
- EPS = Earnings Per Share
- 8.5 = Base P/E ratio for no-growth companies
- g = Expected growth rate
Later practitioners like Warren Buffett simplified this further—often performing "napkin valuations" emphasizing margin of safety (buying at prices significantly below intrinsic value).
Crypto Markets vs. Traditional Assets
Applying value investing to cryptocurrencies requires understanding their unique characteristics:
Regulatory Classification
- Commodities: Bitcoin and Ethereum (per U.S. Commodity Exchange Act)
- Securities: Some tokens like FTT may qualify (per SEC lawsuits)
- Hybrid traits resembling forex, equities, and commodities
Market Correlations
Studies show:- Strongest correlation with U.S. equities (especially during QE periods)
- Weak ties to forex markets despite 24/7 trading similarities
- Intermittent commodity-like inflation hedging properties
Challenges for Fundamental Analysis
- Lack of reliable financial statements (unlike public companies)
- Unverifiable metrics like "600K users" claims
- No standardized valuation models (unlike CAPM for stocks)
Practical Takeaways for Crypto Investors
While pure value investing remains difficult in crypto, these principles offer guidance:
✅ Focus on Cash Flow
Seek projects demonstrating real revenue (e.g., protocol fees, sustainable yield)
✅ Margin of Safety Approach
- Avoid overpaying during hype cycles
- Accumulate positions gradually in bear markets
✅ Portfolio Construction
- Diversify across sectors (Layer 1s, infrastructure, DeFi)
- Hold significant cash reserves for downturns
❌ Avoid Common Pitfalls
- Memecoins (lack fundamental value)
- Excessive leverage
- Short-term trading based on technicals alone
Frequently Asked Questions
Q: Can Bitcoin be valued like a stock?
A: Partially. Its scarcity (21M cap) resembles gold's commodity attributes, while network effects mirror growth stocks—but without earnings reports, traditional models don't apply cleanly.
Q: What crypto projects might qualify as "value" investments?
A: Look for:
- Established networks with high utility (e.g., Ethereum post-Merge)
- Protocols generating verifiable revenue (e.g., top DEXs, lending platforms)
- Teams with long-term track records
Q: How does macroeconomic policy affect crypto valuations?
A: Similar to equities, loose monetary policy (low rates/QE) historically buoyed crypto prices, while tightening cycles triggered selloffs—making macro awareness essential.
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Warren Buffett's enduring success reminds us: sometimes the simplest approaches—buying quality assets at sensible prices—outperform complex strategies over time. While crypto markets evolve, these timeless principles offer a compass for navigating their volatility.