Pick-And-Shovel Investing For Cryptocurrency [Explained]

Investing in the picks and shovels using the pick-and-shovel play for crypto has created some of the highest returns of any cryptocurrency investment.  

Cryptocurrency ecosystems is where investors and researchers find new crypto and gems to invest in, which are the altcoins that are undervalued and investors can ‘get in early’. Altcoin investing is when you buy a digital asset that is not Bitcoin.

In this article we’ll outline what the cryptocurrency picks and shovels are, how to find the crypto picks and shovels and how to use the pick-and-shovel play to maximise your UK cryptocurrency investing strategy.

What Is Pick-And-Shovel Play?

The pick-and-shovel play is an investment method where investors choose the underlying technology or the smaller tools instead of the overarching product or service. 

In the real world the electric car market is big. The pick-and-shovel play here would be investing in a company that builds the car batteries or the company that builds the charging points.

What Are The Crypto Picks & Shovels?

The picks and shovels investing strategy in cryptocurrency is investing in the smaller projects within crypto ecosystems (ecosystem projects). A crypto ecosystem is a network of cryptocurrency technology within the same blockchain. 

For example some of the biggest and fastest growing ecosystems and the best cryptocurrency to invest in within the cryptocurrency space are:

  • Ethereum
  • Cardano 
  • Polkadot 
  • Solana 
  • Fantom 
  • Terra Luna 
  • Cosmos 

Sitting under each main blockchain (cryptocurrency layer 1) are several smaller projects (cryptocurrencies) that offer features and technology to support the blockchain and make it better. 

Why is this a top investing method? Glad you asked, it’s because the flow of money cascades down from the large market caps to the micro market caps, as explained in the Altcoin Investing guide

crypto money flow chart

Specifically with ecosystems, investors who are exposed to the likes of Polkadot for example will also likely take profits and invest in the smaller projects within that ecosystem and we know that more capital invested means better price appreciation. 

Perhaps one of the reasons is that investors who are familiar with Polkadot will also be familiar with the crypto ‘picks and shovels’ because when investors research or engage with Polkadot it’s only natural to be more exposed to the underlying technology or projects that belong to it. 

Let’s say you want to make a transaction on one of the blockchains above, you would need to use a dex (decrentralised exchange) to do so. The dex that belongs to one of these ecosystems will have their own coin/cryptocurrency so this would be an example of a pick and shovel play. 

What Are The Best Crypto Ecosystems to Find The Picks and Shovels?

Some of the biggest and fastest growing crypto and blockchain technologies have been listed above. The only measuring stick we have when it comes to popularity is market cap. 

When researching an overall ecosystem, look at the founder, the team and the roadmap. Ask yourself, is the ecosystem trying to fix a problem? Will this get mass adoption? These are just some of the questions that might be useful. 

Looking at the top 10 cryptocurrency ecosystems by market cap is a good starting point.

Cardano ecosystem

How To Find The Crypto Picks & Shovels In The Ecosystems

As mentioned above, you can look at the cryptocurrencies within the big ecosystems as highlighted. However, if you want to dig a little deeper you can research by category within the ecosystem. For example, within each ecosystem there is a range of projects that are needed to keep the blockchain running . Below is an example of some categories that make up a blockchain network: 

  • Lending/Borrowing
  • Launchpad 
  • Stablecoin
  • Oracle
  • Payments
  • NFT/Gaming
  • Wallet 
  • Dex 
  • And so on

Find Crypto Picks and Shovels – Step by Step 

  1. Find the best narrative within the crypto space 
  2. Research the ecosystem you wish to invest in 
  3. Analyse the cryptocurrencies within the narrative you have chosen 
  4. Make you pick-and-shovel play investment   

Risk With Pick-And-Shovel Play In Cryptocurrency

Investing in the smaller projects within the crypto ecosystem will create higher returns than investing in the head of the ecosystem itself – most of the time. The smaller projects have a lot more room to grow and are more susceptible to price changes. Why? Because they have a smaller market cap. 

For those looking to start smaller with a little less risk then you should learn how to buy Bitcoin and use the dollar cost averaging investing in crypto method to grow your stacks. Over time you can then expand to other investing strategies for beginners and further afield.

However, you also still need to rely on the head of the ecosystem for the smaller projects to thrive. For example, if Solana increases in price the whole ecosystem will too but at a more increased rate, hence why this is a great investing strategy. 

However, if Solana decreases in price then this will also have a negative impact on the ecosystem and on the picks and shovels.