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In the article (In-depth investment review from hundreds of thousands to tens of millions: the logic behind BTC/ETH/SOL position configuration and future choices), when I reviewed the changes in BTC\ETH\SOL positions, many readers sent me private messages asking me to share the overall investment system.
Actually, I have shared this once before, but as the market changes, although the general idea remains unchanged, there are still some important adjustments. So I will take this opportunity to share with you the investment thinking system that I relied on from A6 to A8, which was correctly practiced in the past, is correctly practiced now, and will most likely be correct in the future. I hope that you will not operate blindly during the bull market.
For past position changes and returns, please refer to (In-depth investment review from hundreds of thousands to tens of millions: the logic behind BTC/ETH/SOL position configuration and future choices), so I won’t waste your precious attention here.
To sum up, the three core elements of the entire investment system are: the cyclical attributes of the investment targets, the allocation ratio of the investment targets, and the actual decision of building or reducing positions.
Why do I always miss so many opportunities?
Why do the tokens I bought never increase in value?
Why dare to lose but not win? Why can't I make money? Why, why... I believe that after reading this article, you will have an answer.
1. Cyclical properties of investment targets
Three cycles in the crypto industry
To put it bluntly, investment is to buy at low cost and high price as much as possible. Of course, the judgment of low price and high price comes from self-cognition; but when the market gives a low price and when it gives a high price depends on the cycle. What is the cycle of the crypto industry? There are three types.
The first is the industry-level development cycle. According to Gartner's technology maturity curve, an industry will go through five stages: Innovation Trigger (the triggering period of technology birth), Peak of Inflated Expectations (the peak period of over-expectations), Trough of Disillusionment (the trough period of bubble), Slope of Enlightenment (the steady rise of enlightenment period), and Plateau of Productivity (the plateau period of actual production).
The second is the bull-bear cycle. It has to be said that crypto players are very lucky. The first luck is that the bull-bear cycle of the crypto industry in the past has been centered around the Bitcoin halving, and the cycle is very short, just four years. Look at Buffett, an old man in his 90s, who has only experienced four bull-bear cycles in 1973, 1987, 2000, and 2008.
The second good thing is that the crypto industry has a unique and correct target. During the bull-bear cycle that Buffett experienced, the changes in his heavy positions involved tracks such as oil, finance, consumption, and technology, and we only need to adjust Bitcoin.
If we follow the rhythm of the stock market, what we need to do in crypto investment is to hold a large position in Bitcoin at the industry cycle level, and at the same time adjust the position during the bull and bear cycles to obtain more Bitcoin.
But the uniqueness of the crypto industry is not only reflected in the uniqueness of Bitcoin, but also in the fact that it has created a unique cycle beyond industry cycles and bull-bear cycles. I shamelessly call it the "concept cycle."
In addition to Bitcoin, the crypto industry now seems to have a wide variety of tracks, such as Depin, RWA, Defi, LSD, anonymity, public chains, etc. But in fact, these can all be classified into one category, called technology\application assets.
From the perspective of the industry cycle, these high-quality targets of technology and application should theoretically be held until the plateau of actual production. However, based on the current industry and number of users in the crypto industry, it is doomed to be impossible to have a large-scale application explosion in a short period of time. In other words, the leaders of the track that appear at this stage, like those .coms in the early days of the Internet, are likely to become martyrs. So betting on a so-called leader at such an early stage will definitely lead to the systemic risk of being replaced.
However, with the Internet's wealth-creating effect as a precedent, VCs will naturally not miss such an exciting topic as "WEB3". Therefore, at this stage and in the next few years, the development of encryption technology and applications will experience "a new stage of technological innovation", overinvestment in technology, and an unexpected bubble burst.
And based on the decentralized nature, the barrenness of a country with a lot of things to be rebuilt, and the relatively small market size, such bubbles will continue to appear repeatedly and can give participants huge investment multiples. Strictly speaking, this is not an investment. According to Duan Yongping, this is an "investment opportunity."
However, such a cycle is very short, which is what we call a small cycle.
How to divide the target period?
The core meaning of dividing the target cycle is to help screen out those projects that can cross the cycle. This is the most important point, even more important than paying attention to the cycle of alternating bull and bear markets. Because in essence, the position changes during the alternating bull and bear periods are to make more chips in your hands that can cross the cycle.
I didn’t sell Bitcoin in the last bull market, and suffered a large-scale asset fluctuation in vain. I always thought that a full position was enough, but in the end I found that it was not the case. On the one hand, the position is so large that it really affects the quality of life, and on the other hand, it also has a great impact on the mentality. So in this bull market, I will reduce my position, the meaning is to make myself feel better, and at the same time, it will give me more bullets to buy Bitcoin in the bear market.
Bitcoin is the absolute representative of cross-cycle projects. And Bitcoin is not the same type of project compared to other projects, even compared to Ethereum. (For more information about my understanding of Bitcoin, you can read this article: (Even if you can only buy 0.001 Bitcoins per month, you should buy them). I will not go into more details here.)
Why do I say that? Because the core of Bitcoin is to store value. Without going into more narrative premises, its next benchmark is gold. Therefore, strong enough consensus, sufficient decentralization, and sufficient rarity are the key, and technology is secondary. In the past, there was a very good reference, that is, diamonds. Now diamonds have systemic risks, because they can be artificially created and become a one-time transaction, pitting the consumption value of a wave of "love", and no one is interested in the secondary market.
Technology application projects are different. From the Internet era, the monopoly platforms on the 2C side are actually the most likely to grow. The logic is that monopoly companies eat up most of the industry's profits. For these monopoly projects, there are two stages of judgment: one is whether the industry has been integrated; the other is whether it can be monopolized and maintain a monopoly position for a long time (maintain value in the long term).
From these two perspectives, there are no technologies or application projects with monopoly effects in the crypto industry during this period. First of all, the industry integration has not been passed. The exceptions are several large centralized exchanges and Ethereum. Binance should have a monopoly now, but it will not become the mainstream form of crypto in the end because it is a centralized project and it may not continue to monopolize in the future.
The current market value of BNB is high because it is the one that can provide the most value at this stage. One is that it provides liquidity, and the other is the value of a "newbie village" so that ignorant users will not be surrounded by wolves as soon as they enter. But what about the future? Centralized exchanges still depend on the management. CZ and He Yi can talk about ideals when they have made enough money, but those employees in power departments who have not made that much money will definitely be corrupt. What about CZ and He Yi in the future? This is just one point. What about the future? If the value is transferred or it can't provide that much value, the market value will decline.
What about Ethereum? This year, Ethereum underperformed Bitcoin and Solana, and many people began to discuss whether Ethereum is a cross-cycle project and whether it can be held for a long time. There are a lot of negative news, and Fud Ethereum seems to have become the mainstream. In fact, it didn’t mention the key points, and it was only driven by the short-term price. Now that Ethereum has risen to 3K, the voices have become much smaller.
In fact, the core of thinking about Ethereum lies in three questions: 1. Will Ethereum be replaced by BTC ecology, Solana or other public chains? 2. Will the value of Ethereum be captured by DAPP in the future? 3. Will the large-scale outbreak of the application layer be delayed by decades?
The first problem probably won’t occur. Bitcoin essentially needs stability, and technological updates are secondary. It is possible to make Bitcoin more liquid, but it is unlikely to replace the Ethereum ecosystem. Looking at other public chains, it seems impossible. Solana relies on its high degree of centralization to easily promote some projects, but without holding high the banner of decentralization, it is difficult to continue the unification of the application layer.
Secondly, although it is easy to promote projects on centralized public chains, they are only sensitive to market changes and can quickly follow up on what is popular. It is still not enough to build infrastructure for the entire industry. Many people compare the MEME craze with the ICO at that time, but there is no comparison. ICO gave birth to many important infrastructures, such as Uniswap, AAVE, MakerDAO, and Solana? Do you remember what DAPP it created?
The second and third problems are the key. The public chain now looks like 2C, but in fact it is infrastructure, and in the end it is 2B. The ultimate monopoly of the market depends on products, and it is also products that provide value. For example, Goolge, Microsoft, and Apple may indeed have a few super killers running on Ethereum in the future, capturing all the value, and finally the market value will exceed one trillion, but Ethereum will still be a few hundred billion.
But if you think about it carefully, there are other possibilities. Web3 is a new world. If Ethereum is formed, it is not appropriate to use companies as benchmarks. Maybe we have to use countries as benchmarks. Then ETH will become a "tax", but how long will it take? I don't know.
Another unknown time is the time when the crypto application layer will explode, whether it will be 5, 10 or 30 years. The later the explosion is, the lower the rate of return will be. For example, if there is an explosion in 15 years, Ethereum will only rise to 3 trillion, which is too low.
To sum up, Ethereum is still a cross-cycle project at this stage, and its explosive power cannot be underestimated, but there are uncertainties, and they are not small problems.
Apart from Bitcoin and Ethereum, all others are short-cycle products. However, there are different types of short-cycle projects. Some of them cannot create any bubbles in the short cycle, or they fall apart in three to five days. These cannot be considered short-cycles, but scams.
A real short-cycle project is one that has a complete narrative logic and has a relatively high probability of being able to participate. For example, in the past, DeFi, Metaverse, Layer2 airdrops, RWA, Depin and other directions, the long-term logic of the track continued to exist, but the bubble burst due to the expectation of the project's landing. This is the case that the slope is long and the snow is not thick, and there is an opportunity to discover and participate early.
There are also projects with shallow snow and short slopes, such as MEME itself. The rotation is too strong. I do not deny that some lucky people can make money, but the probability may be only 0.1%. Secondly, there is no way to accumulate winning rate on MEME. Many KOLs talk a lot, but in fact, they just get lucky and hit one, and the rest may not follow up.
To summarize: BTC\ETH are cross-cycle projects, while projects in the core track are small-cycle projects. Different cycle projects require different position handling methods in the market cycles of alternating bull and bear markets, which is the practical part we will talk about next.
II. Allocation ratio of investment targets
Large positions in BTC/ETH
Large positions in Bitcoin and Ethereum are eternal political correctness. In the past, Ethereum was more acceptable because it was more cost-effective, but in the future, Ethereum will be between 300 billion and 3 trillion. Compared with Bitcoin being equivalent to gold, the latter is probably more certain. Therefore, Bitcoin and Ethereum need to be at least 50-50.
In addition, the most important reason for holding a large position in BTC is that profits and losses come from the same source. Where you make money in the market, you will most likely lose money there. So we can only choose the most certain and safest targets to ensure that we make money. In addition, the return on Bitcoin is not low. From last year to this year, there has been a 6-fold return. Even if you open a position at the historical high, at least you will not lose money.
This is the unique advantage of the crypto industry, and it is also where everyone needs to be cautious. Because the crypto industry is in its early stages and has a large enough space, the beta returns can be very high, which is an advantage; but it is precisely because of the early stages that the market value of trillions of dollars is inherently very risky, and it is meaningless to explore alpha returns with a large position and let the risk factor increase geometrically.
Finally, the only ones who can make big money are those who hold a large position in Bitcoin and Ethereum. The return on investment is the income of the project from the despair zone to the peak zone of the bull market. In the period of despair, everyone's consensus is different. For Bitcoin, everyone is thinking about whether they can buy it at a lower price, but for a small cycle project, everyone is worried about whether it will return to zero, so how can they dare to hold a large position. Anyone who has experienced a bull-bear cycle should have a deeper understanding of this experience.
Small position period tokens
Small-cycle projects are also generated because of the unique stage of the crypto industry. You will find that in the concept cycle, many projects have very large explosive power, often several times, even tens or hundreds of times in a short period of time. In the DeFi cycle, related projects all start at 20 times, and this is still mid-way participation, and there is no need to explore in the earliest stage.
Similarly, there are the Metaverse and GameFi cycles. I mentioned RARE, which increased fivefold within a few days of purchase, but if the battle was not ended within the cycle, it would drop to 0.1U at its lowest. The same is true for this year's inscriptions, Near inscriptions, and encrypted stones, which all increased by hundreds or thousands of times, but if the battle was not ended in time, there would be no liquidity now.
It is precisely because of this exaggerated multiple that many people begin to fantasize about some unrealistic things, such as buying tens of thousands or hundreds of thousands at a time. Wouldn’t that make you rich? But the reality is not like that. The reason why many projects have high multiples is because of their low market value. The market value is low, the market value is low, and I say it three times.
Especially when the market value is tens to hundreds of times higher, the market value must be very low. Low market value means insufficient liquidity and no money can be put in. Similarly, because of the low market value, the project's own risk resistance is also poor. If it is not at the right place or does not have enough potential energy, it is easy to collapse in an instant.
Based on this, the participation limit for concept cycle projects must be early and with a small position. For example, if you take out 10% of 100,000 yuan and catch the trend and the investment rises 20 times, the total return can also become 200%. If it fails, it is only a loss of 10%. You can retreat to attack or advance to defend.
It is worth noting that conceptual projects are most afraid of Fomo and medium-term heavy positions. Take Ordi as an example. If you want to make 1 million yuan on Ordi, you only need 10,000 yuan at the end of March last year, 100,000 yuan at the end of May, and 200,000 yuan at the end of November. The risk is getting higher and higher. If you invest in Ordi at the peak of its popularity in March this year, it will be almost zero.
In a word, projects in the concept cycle are investment opportunities, where a small investment can bring a big return. Strictly speaking, they are not considered investments, but more appropriately called value speculation. Therefore, they are only suitable for small positions, and only small positions can be taken.
·Small position short position.
It is crucial to keep a small position in the short position, which is also the conclusion I came to after experiencing the last round of bull and bear markets.
From a mental perspective, it is very uncomfortable to experience the alternation of bull and bear markets with a full position. It is difficult for normal people to tolerate the loss of millions of profits. Don’t think that I write articles to you every day and talk about it calmly. It is also to cheer you up. I will also pat my thigh behind your back and think that I should reduce my position.
Moreover, my cost is very low, 200U for Ethereum and over 6,000U for Bitcoin, and the retracement is only the profit. Even so, I am like this. Think about what kind of mentality I would have if I had a heavy position in the bull market and then a retracement. Operational deformation is considered mild, and a serious one will lead to desperate attempts and go astray and never come back.
Many people are blindly confident about their risk tolerance. Before investing, they are willing to accept a 50% loss, but when the real money is invested, they cry and scream when the loss is 10%. This happens because the position is too heavy or there is no way out (the bullets are used up).
At this time, this part of the short position has a very important meaning. Junior high school teachers should have told a story called "Apple in the Desert", which is about a traveler who got lost in the desert and only had an apple in his hand. Whenever he couldn't hold on, he would lick the apple and tell himself that he still had an apple and was not afraid. In the end, he walked out of the desert with this belief. So, do you have any insights? This is called spiritual support.
Secondly, under the control of decentralization, the capital market will always experience periodic financial collapses, and when luck is good, global black swans will be brewed, such as the 312 in 2020. At this time, the streets were full of blood, and everyone knew that they should increase their positions, but everyone was fully invested in advance because of greed.
But think about it the other way around, if the project you invest in is a huge success, how big of a difference can there be between 100% and 80%? At that time, this difference can be ignored. But if you free up 20% of your positions and wait for the black swan, the return you can get will be quite considerable.
So you see, a small short position can not only give you the courage to get through the bull and bear markets, but also can be used to pick up bargains. The cost-effectiveness is incredibly high.
My own position now is BTC\ETH accounting for 65%, Sol\small coins accounting for 20%, and short positions accounting for 15%.
Regarding this part of the thinking, the article at the beginning of the post is written in more detail. I will post it again for your convenience: (In-depth investment review from hundreds of thousands to tens of millions: the logic behind BTC/ETH/SOL position configuration and future choices)
3. Actual decision on building or reducing holdings
How to increase or decrease positions in long-term targets
The reason why the technical school is enduring is that the market is in a box oscillation cycle for a long time, and it seems that you can make money continuously. But in fact, the time when the price escapes from the box oscillation is the most important time to pay attention to. If it goes beyond the box downward, it is an opportunity to open a position, and if it goes beyond the box upward, it is an opportunity to reduce a position.
However, the media likes to be bearish when the market plummets, and bullish after the market surges. Human nature often has a herd effect. Friends who want to open a position think that the market will fall further and want to wait for a lower price, but they turn around and don't give them the opportunity; friends who have positions are afraid that the market will fall further and are deceived by the market and lose their positions.
In fact, if you think about it more deeply, it is because of insufficient cognition. You always want to control the things that you cannot control, but always ignore the things that you can control.
What are the things that cannot be determined? How the interest rate will change, who will be the next US president, whether the market will rise or fall tomorrow, these are all unpredictable. Because the closer the price fluctuation, the more influencing factors there are. Probability theory tells us that even if each condition can be 80% certain, it may eventually become 30%.
Then, if you can't grasp the short-term price, how can you buy at the bottom or escape at the top? Therefore, whether you are building a position, increasing a position or reducing a position, you must operate in batches.
The market will definitely fall, and it will definitely rise. The moon waxes when it wanes, and wanes when it waxes. This is an eternal truth. Even the U.S. stock market, which is known for its eternal bull market, will also fall. If you can't judge the bottom, you need to divide your money into several parts and implement it according to the plan every time it falls.
I'll say it again. Investing in the cryptocurrency world really requires good luck. In other markets, you not only need to judge the bull-bear cycle, but also the target. In crypto, you don't need to judge at all. There are only two targets in the big cycle, one is Bitcoin and the other is Ethereum.
The market is uncomfortable most of the time, so you have to be able to wait. Because if you want to make big money, you have to buy as low as possible. Remember, in the crypto market, it is not about making or losing tens of percent, but about waiting patiently and making a big move at once to get big results.
From this point of view, it is very easy to add or reduce positions for long-cycle targets. Don't consider being Fud, because they are deeply bound to the industry. What you need to consider is the great opportunity to build positions every time the bull and bear markets alternate, as well as the opportunities to increase positions due to various negative news in the middle.
As for reducing your position, it becomes very easy when your position price is low enough. The only impact is to control greed and reduce it slowly in batches. You need to remember not to be short and fight against the anchor effect. If you reduce your position to short, you may never be able to get on the train again.
Finally, I must remind you that the above is the general outline of position change decision-making. It will vary from person to person because everyone's cognition, position, funds, and risk resistance are different. A full position is not the same as an empty position, tens of millions are not the same as hundreds of thousands, and the cognitive differences are also different.
You only need to grasp the main line of the general outline, think clearly about your own status, and see the stage of the market clearly, so that you can understand what to do. Those who imitate me will die, and those who learn from me will live.
How to increase or decrease positions in short-term targets
Position adjustment for concept cycle projects is often the most difficult, yet it is also what retail investors like to do the most.
It is different from the position changes in the big cycle. Because the configuration is small, most of the time there are only two actions, one is to open a position, and the other is to clear a position. It is enough to control the configuration amount.
The more important judgment for these projects is whether this concept can create a larger bubble, which requires some ability to judge trends.
There are so many crypto tracks, how can we find them in the early stage? Many people think that we need insider information, but it is not true. What we need is the ability to screen with confidence. In the past, I made very early predictions about concepts such as DeFi, NFT, Metaverse, Layer2 airdrop, LSD, BRC20, RWA, Depin, etc. This is not bragging, I have written articles and X about them. Now I will share my analysis ideas and logic, there are three points:
① Based on your past cognitive system of society, business, economy, culture, and philosophy, judge the final “form” of the industry.
② Based on the final form and combined with the current status of the industry, reversely deduce and search for the pillar tracks for the development of the industry and propose tracks that solve the core dilemmas.
③Deduce the development of the pillar track in the next 1 to 3 years, reversely search for leading projects in the track, and propose projects to solve core difficulties.
④ Conduct due diligence on the project in an all-round way based on the premise of “whether the project development process has been promoting the core competitiveness of the project” (maintaining the leading position and continuously optimizing the ability to solve problems).
Let’s take LIDO as an example here.
LSD actually existed a long time ago, starting from the POS public chain. But the LSD of the early POS public chain was not very imaginative. At that time, the craze of liquidity mining had passed, and the yield had returned to a relatively normal stage. Solana's annualized staking yield is 1.5~5%, AAVE is 6~7%, and the staking yields of other major leading projects are maintained at this level.
Moreover, at that time, the pledge rate of all POS public chains had reached 60~70%, and the LSD track lacked internal growth space; at the same time, the profit space of the LSD track was limited by the market value of the POS public chain. Except for Ethereum, the market value of the top ten POS public chains combined was less than 100 billion US dollars, which was really lackluster.
Therefore, if the LSD track wants to develop, it must be combined with Ethereum. As expected, with the continuous advancement of Ethereum 2.0, the key issues of the LSD track have finally been solved:
The Ethereum beacon chain provides new ETH staking rewards, and the endogenous growth rate expands;
ETH's total market value accounts for 18% of the crypto industry, with a strong value consensus that can support ETH becoming the industry's risk-free interest rate.
Ethereum will still have great explosive power in the future, and its overall market growth potential is huge.
Then the LSD track has become a new opportunity for DeFi.
As of June 2022, the entire Ethereum staking rate is 10%, the number of ETH staked is close to 13 million, and the staking yield is about 4.5%. The LSD protocol accounts for 32% of the total staking; exchange staking accounts for 28%, third-party staking accounts for 23%, and the remaining Pools and personal nodes account for about 17%.
Among them, the only one with a leading effect is Lido in the LSD protocol, which occupies nearly 90% of the market share of the entire LSD protocol track and captures more than 3.5 million ETH, with a handling fee of 10% of the staking income.
After this analysis, we can directly lock in LDO, but we need to make a judgment on the valuation. Assuming that the Ethereum pledge rate reaches the average public chain level (i.e. 60~70%), the price of Ethereum can be calculated. If Lido can occupy 30% of the proportion and Ethereum can return to 4.8K, then Lido's annual income can reach 414 million.
Even if the price-to-sales ratio is 10 times, Lido's market value can reach 4 billion, and the unit price is 4U. If the price-to-sales ratio of uniswap in the last bull market is 40 times, it will be even more exaggerated.
Based on this, I opened a position in June 2022, and I also talked about it in the live broadcast in July. At that time, the price was around 0.7U. The high points of the next two rounds were 3U and 4U in January this year. Of course, this set of logic cannot analyze MEMECOIN, and I can't grasp it myself. I don't have enough ability and I can't make money from MEMECOIN.
In general, for concept cycle projects, what needs to be done is to establish a set of logic to detect and arrange early, and then reduce the position when it meets expectations.
4. Record of encrypted investment.
That’s all about the entire investment system. At this moment, after Trump took office, Bitcoin is about to break through 80,000, and many small altcoins are following the rise. At this time, you should not make any moves, and you need more patience, so I chose to publish such a long article at this time, so that everyone can think calmly.
The bull market has arrived, but the same thing applies: if you don’t make a nest in the bear market, all operations in the bull market may make you lose money. Don’t move rashly. Before you move, you must first think about what you are doing in crypto?
Are you here to join in the fun and lose money due to Fomo? Or do you want to get the final result?
