Surviving The Crypto Market

The Macro Confusion

2022 so far, has been a year full of surprises. On the macro front, we have unprecedented inflation, uncertain policy changes that can alter the entire financial landscape, unprecedented global debt and the potential of war between Russia and Ukraine – all at the same time when the coronavirus is finally dwindling albeit high infection rates but the world has largely lost its attention on Covid-19 (fingers crossed).

Adidas NFT

We see mass adoption of crypto jargons in mainstream traditional finance everywhere with fashion and sports brands adopting “Metaverse” and even JP Morgan (which historically was skeptical and bearish crypto) has set up a store in Decentraland, one of the many Web3 metaverses right now.

JP Morgan Store in Decentraland

Adoption or Top Signal?

These are confusing signals, on one hand, we might think all these trends towards mass adoption as NFTs and metaverses goes mainstream but on the other hand we see our ‘normie’ friends who showed zero interest in crypto suddenly talking about NFTs or owning several NFTs even without understanding what Ethereum does or how the blockchain work. It is very easy to view adoption as a top signal and vice versa, the difficult part is sieving out the noise and judging for yourself.

Choosing the appropriate strategy to adopt

Are you here for the long term or short term? This is a question you must ask yourself carefully because it will determine the kind of strategy you should adopt as every person’s portfolio is different depending on age, time horizon, investing competency, emotional discipline and many more factors.

Don’t be the guy that watches 20 different crypto YouTube videos telling you the next 100x Gem and then go ahead and buy 20 different coins thinking one of it will 100x because it won’t. If you lack the conviction to hold through high volatility or not even understanding the project, then you are doomed to fail, over and over again. (Until you finally do proper research)

It may sound addictive to chase the next 10x or even 50x small cap crypto gem seeing others have done it themselves but how much of it was actually skill or luck? Did that person tell you how much he lost before he chased the right shitcoins and made 50x? And how big was the 50x? If the person only placed a small $10 bet for example, 50x is only $500. And even if the size was big, did the person take profit? Did he rotate the profit elsewhere and go on to compound those gains? Or did he go casino mode and gambled all the profits away in another shitcoin that went to zero?

Mindset, Mindset, Mindset

The moral of the story here is: If you treat crypto like a casino, then you will get casino-like returns. If you come up with a proper investing framework and the goal is to survive long enough that you keep your gains and continuously compound it, then you will be bound to make more in the long run.

There is a huge difference between Getting Wealthy and Staying Wealthy, and in crypto, it may be easy to get wealthy as you just need some luck and buy into a 100x token that you forgot you bought 8 months ago or that NFT collection that rocketed to 100 ETH Cough BAYC and you suddenly lost all rational sense when it comes to money and valuations.

Many Bored Ape Holders lost their NFTs to scams which costs hundreds of thousands or even millions of dollars in ETH, and it seems to repeat again and again. Why?

Many Bored Ape holders have no idea what Ethereum is or, worse, what a Seed Phrase is. Some of them are duped into entering their Seed Phrase and transferring their NFTs away from their wallets, resulting in the loss of their private keys. The importance of operational security and preventing your wallet from being doxxed was not a priority for many BAYC holders until scammers began to take advantage of their ignorance about crypto wallet security.

So, while their NFTs made them rich (theoretically), they did not upgrade their knowledge to protect that upgraded level of wealth and thus lost it just as easily as they gained it. I believe you understand what I’m saying here.

So what’s the purpose of this post? I think it’s a mental reminder to myself and everyone to remember the key thing when it comes to investing: Surviving.

Rationality and Perspective

The crypto market is a place full of opportunities and unimaginable gains that traditional investors or even sophisticated hedge funds can only dream of. We often talk about gains in multiples (2x/5x/10x gains) and this is something traditional finance investors can never grasp their tunnel vision on. What takes years or even decades to achieve can be achieved in a span of months and sometimes weeks in crypto, reaching incredible multiples that might even be generational wealth figures.

While most of us are ultra bullish on the long-term outlook for crypto, it is without a doubt still highly risky in crypto and the DeFi world. It’s a game of who have more information edge and whether you can find opportunities early before anyone else does such as farming early before the latecomers dilute the rewards or minting a stealth mint project only to see it moon 200x on secondary markets.

While all of us strive to be ‘early’, there are also various traps that lure degenerate apes who lost all rational sense of valuations into thinking they are early into a farm only to be rug pulled and losing all their capital.

If you don’t have that information edge, then its better to stick to solid projects with actual fundamentals and accumulate such tokens slowly in the long run. That way, you are limiting your downside risk tremendously while still enjoying a comfortable level of upside.

Hence the key idea here is to survive. Don’t go full degen or you risk losing all of your hard earned gains.

Portfolio Changes

As of 19 Feb 2022

As for my portfolio, I have been consolidating my portfolio into a few key bets (ETH/FTM/METIS), and sold some of my smaller positions like GuildFi, Merit Circle at a loss while taking profit on Dopex and Ronin and rebalanced some of my positions.

I am now mostly in solid projects and ecosystem tokens takes up a huge chunk of my portfolio. Specific DApps are too difficult to bet on which is why I prefer owning an entire ecosystem which functions similarly to an ETF; whereby owning ETH means owning the entire Ethereum ecosystem and owning FTM means owning the entire Fantom ecosystem and so on, you get the point.

Of course there are higher beta plays like the underlying ecosystem coins that will do better than the native token (like ETH/FTM/METIS) but at the same time I have capped my downside risk should there be further market downturn.

I am comfortable with the portfolio I am managing and this helps me keep my emotions in check so I don’t make irrational decisions like panic selling or not being able to sleep because I am “over-invested.”

Surviving in the markets does not mean you outperform your peers for a particular time period or year, but continuously compounding your wealth (be it big or small gains) no matter the market conditions and not being shaken out of the markets for as long as possible.

Consistency Short Burst of Outperformance

Warren Buffett was said to be the greatest investor of all time not because he is extremely talented at investing or making a 100x on his investments in the shortest amount of time, but due to his perseverance and ability to remain in the markets for 80 years, while going through multiple recessions, wars, conflicts and market crashes.

He did not make jaw dropping gains of 100x on his portfolio in 1 year but he was consistently investing for 80 years and allowing compound interest to do its thing. So unless you are retiring tomorrow, I recommend you to sit back and relax because investing for the long term means ignoring short term noise (eg. Fed policy change/Russia/Ukraine conflict) and sticking to your long-term thesis. (eg. Where will crypto be 10 years from now?)

Yes, you might say that crypto and stock markets are very different, but the concepts used to tackle it is fundamentally the same. The market will always be a voting machine in the short run and a weighing machine in the long run.

Focus on fundamentals if you are in this market for the long-term and make use of technicals to determine a good price entry, not predicting what Bitcoin’s price will be in 2 weeks.

And like every great investor said, you should know what you own, and why you own it, concentrate your bets (on conviction) if you want to be rich, diversify to maintain your wealth, and to always buy when others are fearful and sell when others are greedy. Applying all these thought processes will help you become more rational and think like a long-term investor.

Crypto is an active investment

Crypto is still very early and narratives change at the speed of light, it is pretty much active management that wins, so you do need to have a decent level of understanding of the crypto markets and see where it is going to have a sense of which project is good and which projects are bad.

If you throw money into crypto not bothering about the competitive landscape or which sector is meta right now, you will be exit liquidity for everyone else who have information edge against you.

Concluding Thoughts

Form your own thesis and build your own conviction, research on as many projects as possible for you to form that thesis and improvise over time. The key is to survive and compounding your way to financial freedom. We as humans always overestimate what we can achieve in the short run but underestimate what we can achieve in the long run, and I believe this is extremely true when it comes to crypto investing.

Developing your own circle of competence (be it NFTs or DeFi or GameFi or DAOs) is what will separate you from the crowd and finding opportunities before others. It will then be up to you to have the courage to buy it when the market is irrationally fearful and holding it for the long run. Or you can adopt a Barbell Strategy that separates your long term holds from your short term rotation (higher beta) plays.

I hope you think about some of the points mentioned here before going all in on the next Ohm Fork anon. The new Ohm Fork will come in all shape and sizes and its up to your own judgement to spot it and deal with it. If you have no idea what it does to accrue value but seeing many influencers on Twitter shilling it non-stop, avoid it unless you can understand it. If not, you will be the exit liquidity and yield for those who knows how it works.

Let’s survive the market for as long as possible.

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What is Bitcoin? Answers here

Or do your due diligence on Bitcoin in my post here where I debunk some of the myths regarding Bitcoin.

What is Ethereum? Simple Guide Here

I did a bite-sized article on Ethereum for you to get a crash-course on what the buzz word is all about here.

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What is Decentralised Finance (DeFi)?

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How to Value Crypto Assets?

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Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment.