CrossTower

There are no Ben Grahams or Warren Buffetts in crypto, but that hasn't stopped Martin Gaspar from conducting fundamental analysis of digital assets. 

Gaspar, who encountered bitcoin on Reddit forums in 2012, has analyzed and evaluated cryptocurrencies since college. After writing his thesis on bitcoin as an asset class, he started a job as a fixed income research analyst at Wells Fargo Securities. 

During the day, he researched bond issuers. At night, he scoured through Twitter and online forums for any new information about cryptocurrencies and blockchain technology. This year, his passion for crypto led to a dream job as a research analyst at capital markets firm CrossTower, which serves 55 institutional clients that represent over $25 billion in assets. 

Having bought bitcoin in 2013 for "$100 or $150," Gaspar's portfolio has done well over the years. However, as bitcoin steps back from testing new highs on a weekly, if not daily, basis, investors and traders are increasingly looking beyond the largest cryptocurrency to generate high returns. 

"A lot of early bitcoiners such as myself did not pay as much attention to ethereum as we should," Gaspar said in an interview. "I wasn't that interested in all these altcoins at the time either."

Even during the crypto bull run in 2017, Gaspar was skeptical about whether many of the blockchain projects should or need to issue tokens. Ultimately, what convinced him about the potential of altcoins is decentralized finance.

"With all of these DeFi protocols, the tokens can have real utility and you need them to participate in the governance aspect of the protocol," he said. "They have found ways to make them productive assets, which is a really nice change from some of the token mechanics in 2017."

With the rise of DeFi protocols, which have unlocked $66.88 billion in total value, high-return opportunities have also arisen in the niche corner. 

Depending on investors' viewpoint of the market, there are three trades they can make to generate anywhere from 30% to 80% returns, according to Gaspar. 

"If they are taking the position that right now we are still in a bear market or flat in the near term, a great place to look for yield is DeFi," he said. "You can look for stablecoin pools or farms where you can earn up to a 30% yield in some places."

Gaspar adds that the highest-yielding platforms bear higher risks, but the safest DeFi protocols typically generate a "low- to mid-single-digit" annual percentage yield on stablecoins. 

For investors who really believe in the future of DeFi, they can also take advantage of the steep discounts in DeFi tokens, many of which have fallen "70% to 80% from their April and May highs," he said. 

He personally prefers tokens that are being utilized in a growing network and lists crypto lending protocols Aave (AAVE) and Compound (COMP) as two key examples. 

As far as ethereum itself, which powers the majority of the DeFi activities, the network's transition from proof-of-work to proof-of-stake provides a staking opportunity for bullish hodlers. 

"Ahead of the potential ethereum 2.0 merge later this fall, staking is a great way to add on yield while still getting exposure to the cryptocurrency itself," he said. Ethereum staking is yielding about 6% right now.

Despite the explosive growth of DeFi, the rest of the crypto market still tends to rise and fall in tandem with bitcoin, which surged toward $40,000 after weeks of sell-offs and flat trading. Bitcoin was trading just below $40,000 as of Wednesday afternoon.

From at least two metrics, Gaspar is seeing market expectations that bitcoin's price is going to trend higher.

One is bitcoin flows on exchanges. Inflows to exchanges, which measures the number of bitcoin that investors are sending to crypto exchanges, typically mean they are trying to sell. 

"Compared to May and June where there were inflows every day, as of July 25, there were net outflows for almost 29 days in a row," he said. "So that tells me investors are getting more confident at these price levels."

Another metric he monitors is Glassnode's HODL Waves, which provides a macro view of how long the bitcoin supply has been held. 

Since May, the percent of the bitcoin supply that has been held for at least three months or more has risen from 78% to 82% as of July 25, Gaspar observed.

"To me, it just shows that investors are entering the space with a lot more conviction," he said. 

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See Also:

• The founder of crypto-trading platform Apifiny breaks down why bitcoin is set to 'easily' rally back to $60,000 by the end of the year — and could eventually hit $100,000
• As volatility surges in bitcoin and ether, a Morningstar portfolio strategist explains why traditional investors need a crypto ETF more than ever - and backs cardano's ada token to go mainstream
• A crypto bank co-founder breaks down 6 areas of DeFi to watch — and why most institutions are investing in multiple tokens despite only discussing bitcoin publicly