AN EARLY CRYPTO INVESTOR'S LESSON ABOUT MARKET CAP: HOW FEMI OTEDOLA PAID EARLYBIRDS OVER ₦163 BILLION TO TAKEOVER FIRST BANK NIGERIA HOLDINGS

Mr. Femi Otedola

When you hear that market cap is very important in crypto investing, Femi Otedola's recent takeover of First Bank through available market share acquisition is one of the clearest and most functional example that can demonstrate that importance to you. Let me show you how. 

Nairametrics just reported that Otedola has now succeeded in purchasing over 5% of all 34.7 billion circulating supply of First Bank Nigeria Holdings shares, meaning that he now owns more than 1.7 billion units of the company's available shares supply. 

No other owner of First Bank shares owns [even] nearly up to 5% of that available supply, so this makes Otedola the new majority shareholder of the company, and set to takeover its chairmanship position. 

Shares represent units of ownership of a company. So, whoever owns the highest number of a company's available shares naturally becomes its majority shareholder and most powerful personality. And with that power, they can make critical decisions impacting the leadership and direction of the company. They do this by using the heavy weight of the vote their large number of shares confers upon them, compared to the lesser weight of others. Anyways, this is not what this article is about, so let me focus. 

Market cap of an asset describes how much value an asset carries in the open market. It describes what an asset class is worth in a market, or to the economy. And it reflects how much market value is being held by investors using that asset as vehicle. Mathematically, it is what you get when you multiply the current price of the asset with how much of it that is already in investor's hands and available for trading. 

In order to own an asset, you'll have to pay the current value of it in money (or other preferred substitutes) to its current owner. That is how purchases of all kinds are made. And herein is the lesson that Femi Otedola's action teaches crypto investors about being an early investor in a viable asset class. 

Those who bought First Bank shares earlier probably bought it for N7.55 and less, and it's market cap increased to about ₦271 billion consequently as at September this year. But now, those same shares are worth about ₦12.10 each due to Otedola's purchase of massive quantities of the share units, further increasing the market valuation to the current ₦434.33 billion. As we all know, more demand increases the price of a trading asset. Hence, this means that early investors have now earned about ₦163.32 billion in capital investment gains within barley one month. 

So, essentially, Otedola has just paid early FBNH investors about 70% of their individual holdings in order to purchase the highest percentage ownership of the bank. And if he or any other person purchases any more, that 70% number will increase further. 

Remember, both old shareholders and new shareholders (like Otedola) are all part-owners of FBNH as an asset class. But Otedola now happens to be the highest percentage owner. In other words, he is now the most powerful decision maker at FBNH. But for him to amass that much power, he had to first reward older investors with more monetary value to the tune of 70% of their individual holdings. This is to tell you that at all levels, sales happens. 

However, on the flip side, the older investors are now at the mercy of Mr Otedola right now as well. Should he decide to sell his heavy bag of FBNH shares, he will crash the price, and can trigger a ripple sell-off effect that will also result in further crash in the asset's market price and value as well. And such an action could erase more than 70% of each individual shareholders bag, putting many of them in a loss position. 

By his action, Mr. Otedola is now set to takeover the leadership of the company and set the tune and direction of its policies. 

This demonstrates two important lessons for crypto investors: 

1. The REWARD in being an early investor in a VIABLE trading asset, and 

2. The POWER in becoming the owner of more units of a VIABLE trading asset. 

On the second lesson, for instance, you have heard that companies like Microstrategy have purchased more and more units of Bitcoin. But what do you think they are actually buying? Just Bitcoin? No. It's power, power over the market. And this will be tested in the future. 

Think about it for a minute. Why did Tesla announce that they would stop accepting Bitcoin payments for their products AFTER purchasing $1.5 billion worth of Bitcoin earlier this year? Do you think that action would have had the kind of heavy effect it had over the crypto market if Tesla was not already a large holder of Bitcoins? The answer is NO. By holding so much Bitcoins now, they have acquired leverage over the market. As a reputable business, they can deny the asset credibility by refusing to accept it as payment, but as a high-stakes investor in the asset, they can do more by also crushing its price if they were to sell their bag. Hence, validators on the Bitcoin network will do well to listen to Tesla's policy if they intend to remain in business. 

See that? 

First, they purchased power over the market by purchasing so many units of the asset. And by doing so, they earned leverage over the market, and then used that leverage to set policy: Bitcoin mining must be done in an eco-friendly way. And the market leaders instantly fell in line with that policy immediately. 

Consider this: As Microstrategy has been purchasing their own power, let us wonder what policy they might one day put forward too. 

However, the first and most important lesson here for crypto investors is the massive reward that can be gained by investing in VIABLE trading assets that have a low market capitalization. 

Consider this: The least of the top 10 cryptocurrencies today is Dogecoin, and it has a market cap of $31 billion as at today. So, generally, other cryptos with market cap numbers less than $1 billion are still young and growing, and could make good investment classes for investors who deem them to have viable projects that will keep them growing in relevance within the crypto market. 

For instance, let us assume that an asset's current market cap is $200 million at a current unit price of $10 each for circulating supply at 20 million units. If this asset should experience more price action and hit a $2 billion valuation with circulating supply remaining approximately the same, the price of the asset will rise to $100. This means that early investors who bought when the asset was valued at $200 million or less will have gained at least 10x profit when price action increases the valuation to $2 billion. 

So, the real question now becomes: Is this Crypto asset class really viable and useful enough that people would be willing to commit up to $2 billion dollars in monetary resources to it in the long run? 

See that? Crypto price prediction actually involves some basic math that should help in predicting a feasible outcome. 

You can apply this same logic to crypto assets that you are interested in investing into and see how feasible your price predictions for them really are. 

Finally, notice that the common factor in the two lessons is the asset class being a VIABLE one. So, you should best start your analysis from that point. 

As an investor, the first and most critical skill that you need, is the ability to look at an asset and be able to tell whether or not it is viable, and to what extent it is viable or not viable. 

Making an informed evaluation of the asset's tokenomics vectors is critical for this, and knowing how to do that evaluation is one of the central focus points of the CRYPTO 4 NEWBIES ONLINE CLASS. 

You can click here to purchase the CRYPTO 4 NEWBIES ONLINE CLASS from Selar. 

Alternatively, you can click here to purchase the CRYPTO 4 NEWBIES book from Selar. 

- Crypto4Newbies Africa

"The most qualitative and comprehensive crypto education platform for newbies and oldies in the crypto space." Over 150 participants say so. 

Always do your own research before investing in cryptocurrencies. Never rely on anyone's opinions only. This article is purely for educational purposes, and does not constitute financial/investment/trading advice on crypto or stocks.

Sources: Nairametrics, Ripples Nigeria