The following text is compiled from the series Twitter Space #对话交易者, host FC, founding partner of SevenX Ventures, Twitter @FC_0X 0
This issue's guest: Amanda, Chainup Investment CIO, Twitter @WuWei_BeWater
About Amanda
Amanda, in February this year, the return on BTC from personal options trading was 10 times, and this month it has been nearly 5 times. The full-year return on US stocks is twice that of Nasdaq.
Who is this legendary woman?
Currently the CIO of Chainup Investment, he built a panic index option trading model on Wall Street. In 2011, he joined SDIC Capital to conduct primary market investments and secondary market transactions, and led the listing of Essence Securities.
Entered the cryptocurrency world in 2017; her investment philosophy and trading experience accumulated from traditional financial markets made her clear on how various financial sub-sectors make money. After adjusting her thoughts, she summarized investment trading methodologies suitable for the cryptocurrency industry from traditional financial capital markets and selflessly shared them.
How to formulate your own investment strategy?
First, from two angles, ask yourself a few questions.
The first aspect is from a personal perspective, considering 5 aspects:
1. Total investable asset volume, premise: not limited by loan repayment or time liquidity. 2. Investment goals and return expectations: if it’s 6%, leveraging to buy US bonds (credit bonds) is enough; if it’s 20%, quantitative arbitrage is sufficient; if you want higher returns, look for high-growth assets. 3. Risk preference and tolerance: how much loss/volatility can you bear? If you can only tolerate 20% volatility in this asset, don’t leverage more than 5 times. 4. Time commitment: When might I need this money, at retirement? Next year? 5. Liquidity arrangements: Treat yourself like a company to calculate the balance sheet and profit statement, considering personal life arrangements and bill payments.
The second aspect is from the market perspective, focusing on 2 aspects:
1. Market cycle: When in the middle of a market cycle, does it match my investment time and position control? 2. Position control: Do not deliberately seek diversification; rather, identify where the risk exposure comes from and then diversify assets accordingly. Otherwise, you may find that although the asset names are different, the sources of risk are all from the same category.
What kind of strategy can outperform BTC?
Outperforming BTC is mainly about timing and selecting coins.
First, let's talk about how to choose coins.
BTC has significantly narrowed its volatility compared to before, showing a stable development pattern in the mid-to-late stage. Meanwhile, small coins with potential are showing stronger growth than BTC.
So how do we define indicators of project growth? Amanda: "I usually choose assets that have both growth logic and profitability, while also being able to tell a story and stir things up."
Growth potential: Different protocols and Dapps have different growth potential indicators, such as TVL, Token Holder counts, trading volume, storage, and other quantitative metrics. Based on this, pioneering choices using such quantitative growth indicators, combined with the circulating market cap of the coins, similar to the PEG indicator in stocks, can be used to calculate the relative valuation of a project, continuously monitor it, and compare it with similar projects to filter for more value-for-money growth assets. Additionally, monitoring supply and demand factors that influence supply and demand, such as halving, staking, and staking rewards;
Profitability: For example, protocol revenue, profit analysis, and on-chain transaction analysis.
Public sentiment, as mentioned in Fisher's (How to Choose Growth Stocks), should have both connotation and extension comprehensive abilities; public sentiment is the embodiment of extension.
How to practice deliberately and train your ability to select coins?
Training your ability to select coins can be simply done by paying attention to the relative exchange rate of small coins against BTC, which will form a matrix with two coordinates: one for up/down and the other for outperforming/underperforming. This will create four quadrants: outperforming BTC while rising, underperforming BTC while rising, outperforming BTC while falling (small losses), and underperforming BTC while falling (larger losses).
Among them, there is a type of asset that can outperform BTC when rising and underperform less when falling; this is the best asset choice, but it is unstable.
What you need to practice is to monitor and judge such statistical relationships long-term, so you can find those with high growth potential, good quality, market attention, and possibly outperform BTC. The cryptocurrency market is not considered a weak efficient market, so technical analysis can still achieve excess returns.
Next, let’s talk about how to time BTC.
Buy when no one is paying attention, sell when voices are loud. Amanda bought BTC all in at $16,800 on December 26, 2022, based on good liquidity, and when it later dropped to $15K, I knew this was an acceptable normal fluctuation.
There are short-term event-driven trades in between, such as the sudden rise of BTC during the banking crisis, shorting and reducing positions on the day the BTC spot ETF was listed in January 2024, including options trading, so now that the number of coins has increased, it can be said to have outperformed BTC.
Long-term allocation with periodic selling
Outperforming BTC is about timing and selecting coins; if you are not capable of selecting coins, focus on timing and long-term allocation. Buying near the 200-week moving average and periodically selling around 12-18 months after the halving can generally capture the majority of the market's returns.
Do not underestimate timed selling; this has been compared in (Turtle Trading Rules) with various exit strategies, and periodic selling actually performs the best. What is the hardest part? It is that everyone is very anxious. If you are concerned about short-term returns, it is destined that the gains you obtain will be very limited.
When is a good selling point?
Recently, many technical indicators show signs of peaking. Indeed, historical data is a very good reference, but I do not believe that every cycle is the same as the last. Those who buy are apprentices; those who sell are masters.
From a quantitative perspective, we know that the second derivative can be used to find extrema; when the second derivative equals 0, it indicates a maximum value. It is a concept of rate, in other words, the growth rate is gradually slowing down, indicating that it is approaching the top.
In the cryptocurrency world, the reflexivity theory is vividly expressed. In (Financial Alchemy), it states that the market's fluctuations from the beginning to the point of unsustainability are essentially the positive feedback from people's expectations to realization that cannot be sustained, reaching the market top.
From a qualitative perspective, what causes the market to rise will also cause it to fall.
During the bull market of 2016-2017, the cryptocurrency world was excitedly imagining that Wall Street institutions would enter the cryptocurrency market, but the actual event in December 2017 with the launch of Bitcoin futures by CME led to market panic as people believed Wall Street was coming to short Bitcoin.
In the last bull market of 2020, after the outbreak of COVID, massive QE led to liquidity overflow, causing all risky assets to rise. Thus, after the Federal Reserve announced the end of rate cuts in November 2021, it welcomed the peak of that cycle.
In this market cycle, looking from a large cycle perspective, the true starting point of volatility was the anticipation of the ETF. On January 10, the day it was launched, prices began to retreat, and the selling pressure came from Grayscale needing to sell a large amount of GBTC, which led to a net outflow of the ETF. If you only look at the favorable conditions for Trump's election, the recent growth rate has indeed slowed down, meeting some signals of cycle peaks. However, my judgment of this market cycle is that this round of rate cuts will be gradual, with large institutions adopting massive adoption at a slow pace, so there will definitely be a slow bull trend in this market.
What is the source of market dynamics? — Crust Theory
The cryptocurrency market changes unpredictably, but the volatility of the market remains unchanged. To capture what kind of volatility is needed, a framework is required to capture it and understand how the underlying emotional drivers work. Like the earth's core, it is the starting point of energy; the driving force of the market must come from emotions—it is core, sometimes fear, sometimes greed, or confusion.
Overlaying upward, the project's fundamentals, price performance, and short-term event-driven factors form the mantle.
Then, overlaying the price displayed during that period, the jointly reflected prosperity of the market is the surface.
Therefore, Crust Theory provides profound insights into changes in a market, starting from what and ending at what. What level of emotion is the market at?
The core market momentum must come from emotions; this is the core of the crust theory. Just like an earthquake, energy changes occur from the earth's core, which then reflect in the movement of tectonic plates, ultimately resulting in violent fluctuations on the surface, layer by layer. You need to sense where the market's emotions begin, iterate, and then develop to the point where they can no longer sustain.
How to judge emotions, and what indicators are available?
Simple indicators, such as the fear and greed index. For example, when it is below 20, you probably won't make a wrong purchase; when it is above 90, selling won't be a big mistake either. However, behind it may be opening positions (opening position refers to the positions that are still open in the futures or options market, and the commodity is still waiting for trading in the market, still affected by market price fluctuations).
There are many ways to judge emotions:
First, ETF inflow is a typical emotional change;
Additionally, outside of US stock trading hours, there are continuous price changes, allowing one to feel the pulse of market emotional changes by looking at hourly and minute charts, market opening interest, perpetual premium, and funding rate.
The overall conclusion is that the market is still very positive and optimistic. That is to say, real money is being put into the market, and there is a strong bullish sentiment.
How to continuously discover new Alpha?
First, there should be conscious and proactive acceptance and understanding of these new things, rather than being very afraid. Soros told his disciples to invest first, then analyze, and only then see if it can be sustained.
Second, do not limit yourself to the small scope of the cryptocurrency world; solving current problems must use a higher perspective and interdisciplinary thinking, consciously understanding all major asset classes.
Third, invest with a mindset attuned to the world’s gossip. Price reactions are often faster and timelier; exploring what forces drive prices in the direction they do is essential. There must be traces; you will discover hints and follow the clues, leading you to new stories.
Regarding self-growth for traders, recommend a book that changed you?
Amanda: Every year I can read 1-2 books that reveal many areas for improvement in my past. In 2022, I read the Tao Te Ching twice and in 2023, I read The Art of War by Sun Tzu, and then I finally read the book about Mr. Munger, Poor Charlie's Almanack, which shocked me.
If we only talk about trading, then (Reminiscences of a Stock Operator) and (Financial Alchemy) are still essential.
I have a daily iterative improvement process on my personal version, such as 1.01, 1.11, 2.11, which is a continuous process of enhancing my cognition. You never know when it will reflect in your trading because seeing yourself and the whole world allows you to understand the truth of the market and achieve stable, certain returns in the long term.
Finally, everyone is welcome to follow my podcast—Crypto Cubed.
Little Universe http://xiaoyuzhoufm.com/episode/674bb50b0ed328720a8b4d15
Spotify http://creators.spotify.com/pod/show/c3-/episodes/EP0510-e2rn893/a-abljehm
Youtube http://youtu.be/IXfuN4H0Vy4
Final thoughts
It is not necessary to outperform BTC; if you find a trading strategy that suits you and then practice deliberately and improve continuously, this growth brings you joy, which is actually a core motivation that supports every trader's progress more than monetary returns. This is why I think it's important to engage with (dialogue traders), and I hope everyone finds their own trading strategy sooner, as well as the feeling of closed-loop growth every day.
