Crypto winter is the time to invest: Cryptoanalyst from Animoca Brands

• Mehdi Farooq is an analyst at Animoca Brands.
• Farooq explained why savvy investors can take advantage of undervalued crypto assets right now.
• He explains why bitcoin’s current price is fair, and why polygon is set to soar.

Between massive layoffs at seemingly stable companies, projects collapsing and leaving investors to bear the brunt, and the overall market collapsing, many investors have grown weary of the crypto winter.

But according to Mehdi Farooq, an analyst at Animoca Brands – the powerhouse behind crypto projects like The Sandbox – now is the time to capitalize on undervalued cryptocurrencies.

In a recent interview with Insider, he explained why he believes bitcoin can still be considered a store of value, and pointed to some crypto projects that he remains a fan of.

Why bitcoin is a store of value

A popular investment thesis for bitcoin is that it acts as a store of value to hedge against inflation, because there will never be more than 21 million bitcoins.

However, this task does not seem to be up to the mark. As the market enters record high inflation, bitcoin has fallen in value – plunging from $46,800 in January 2022 to below $24,000 today.

But Farooq believes this present value is fair, and actually strengthens bitcoin’s thesis as a store of value.

“I feel there is an appetite among millennials and Gen Z to have a new form of gold that they can resonate with, that they feel is web3 native and that is the anchor point for all upcoming asset classes,” Farooq said. “So, because of that narrative, it will still have value, and it will take some market share from gold.”

When Farooq calls bitcoin an “anchor,” he means that other tokens use bitcoin in some capacity. For example, if Coinbase users want to buy a crypto that is not available on the platform, they can send bitcoin to another exchange where they can buy the crypto they are interested in.

In other words, Bitcoin acts as a bridge for users who want to buy other cryptocurrencies, and will remain relevant even when newer cryptos come online or when blockchain projects start using different tokens.

“Now, I think around $20,000 to $30,000, the valuation will be around a trillion,” Farooq said of bitcoin’s price. “So that captures about 10% to 15% of the gold market share, which I think, given the risk reward, is fairly valued to me.”

Where to invest during the crypto winter

While Farooq believes that bitcoin is reasonably priced, he believes that the crypto winter is an opportune time for investors to pick up undervalued crypto companies.

Farooq noted that cryptocurrencies are inherently risky by nature, and risky assets are naturally being hurt by the Federal Reserve’s policies at the moment. The Fed’s method of putting a stop to inflation is to raise interest rates, which reduces investors’ risk appetite, and the prices of stocks and cryptocurrencies take a beating as a result.

But this is more a matter of timing, in Farooq’s view, than any problem with risk assets themselves – and that creates an opportunity for discerning investors.

“To me, this creates a perfect environment for long-term investors to actually take advantage of this divergence,” Farooq said.

He continued: “For investors who are risk-averse and their time horizon is three to five years, it will be a once-in-a-generation opportunity to acquire some of these growth assets at a cheaper valuation.”

Farooq suggests Polygon as a project that he believes will only grow in value over the next few years. Farooq says that by investing in the polygons matic token, an investor gets “index-level exposure” to not only NFTs, but also promising crypto sectors such as gaming and the metaverse.

He gave three specific reasons why he is bullish on Polygon.

1) Partnership with Web2 companies

Farooq’s first reason to be bullish on Polygon is its powerful partnerships with industry leaders.

“All the Web2 companies that are entering the web3 space, they are leveraging matic. For example, Disney chose polygon for their web3 accelerator program,” Farooq said.

In fact, Polygon was the only crypto company – to be selected by Disney for its 2022 accelerator program.

He continued: “You had Facebook use matic for Instagram, and Draftkings, which is a sports betting company, they partner with matic.”

Other prominent companies polygon has partnerships with include Macy’s, Stripe and Adobe.

2) High beta movement on the ETH merger

Farooq believes that polygon is well positioned to take advantage of the upcoming ethereum merger. The upcoming merger set for September 2022 will transition ethereum’s blockchain from proof-of-stake to proof-of-work. While ethereum’s cryptocurrency ether has already begun to rise in anticipation of the event, Farooq believes that the polygon will also take advantage of the merger.

“They’re building seven products on top of ETH. So you have a seven-fold advantage when it comes to playing them,” Farooq said.

He specifically cited Polygon’s projects avail, hermez and zero as promising ether-polygon projects.

3) Leveraging Indian talent

Finally, Farooq believes that polygon, an India-based company, has a strategic advantage over other crypto companies when it comes to capturing Indian blockchain talent.

India is a technological powerhouse. According to the National Science Foundation’s 2018 Science and Engineering Indicators report, India produces about 1.8 million engineering graduates annually—or in other words, about 25% of the world’s engineers come from India.

While Farooq believes that Polygon is strategically placed to capture this intellectual capital, Polygon’s own founder, Sandeep Nailwal, feels that the country is at risk of a “mass exodus” of its crypto talent due to the country’s hostile attitudes towards digital assets.