Flipping through the channels this past weekend, I landed briefly on this year’s Major League Baseball draft. Believe it or not, as the event progressed, thoughts of digital assets crossed my mind. Cryptocurrencies and professional sports may not have the most tangible of connections, but that didn’t stop me from making the comparison. Just like teams select players based on what they believe they will accomplish later, investors in the crypto space are looking for the next big thing.
Altcoins are like recently drafted players, with a long road ahead before they find success – if they ever do. But how does one evaluate a prospect in cryptocurrencies? What’s even worth looking at, and where does one start?
My starting point for this is developer activity. I view that as a sign of protocol growth and a signal of where developers have chosen to allocate their intellectual capital. The general thesis being that where development occurs, value accrual and price appreciation may follow.
According to Electric Capital’s developer report, there has been a 22% decline in active developers across the entire space since over the past year and an 8% contraction since January. Additionally, Google search trends show that searches for both bitcoin and cryptocurrencies are half as prevalent as they were a year ago.
However, there are still three ecosystems with positive growth year-over-year, two of which have tradable tokens. Osmosis (OSMO) and Optimism (OP) have both seen increases in total developers, but their respective prices have not followed suit.
The divergence between activity and price could present a compelling opportunity for investors looking to get on the front end of a protocol showing signs of increased developer interest.
While developer activity is hardly the only method for identifying prospects, it is a good starting point. As more innovation, efficiency and value works its way through, it may go a long way in identifying the next veteran.