Editor | Wu Talks Blockchain
This episode is an AMA hosted by E2M Research on Twitter Space, with guests including Shen Yu (Twitter @bitfish1), Odyssey (Twitter @OdysseyETH), Zhen Dong (Twitter @zhendong2020), and Peicai Li (Twitter @pcfli). This AMA delves into two key issues in the Web3 cryptocurrency field: how to hold quality assets long-term and how to adjust one's mindset and heavily invest after selling.
The guests proposed several operational methods and strategies based on real cases: allocating assets through the "Four Wallet" rule to avoid emotional decision-making; adopting a strategy of buying in batches and locking core assets (like Bitcoin and Ethereum) in cold wallets to ensure long-term holding. Meanwhile, for experimental assets (like NFTs), a small observation position strategy is used to explore market potential. They also shared experiences in psychological construction to cope with market fluctuations, such as building rules to limit irrational behavior and daring to adjust strategies during price pullbacks. These practical experiences provide investors with a rational framework and long-term strategic support to face the volatility of the cryptocurrency market.
Please note: The views of each guest do not represent Wu Talks' views; Wu Talks does not endorse any products or tokens. Readers are advised to strictly comply with local laws and regulations.
The audio record was generated by GPT, so there may be some errors. Please listen to the full podcast:
Xiaoyuzhou:
https://www.xiaoyuzhoufm.com/episodes/673a2ca943dc3a43875e8b0d
YouTube:
https://youtu.be/yRk-5d85eHU
Definition of good assets, emotional management, and the "Four Wallet Rule".
E2M: Hello everyone, welcome to our E2M Research AMA this Friday. Today's AMA topic is how to hold good assets long-term, and how to heavily invest after selling. Before we begin, we want to emphasize risk, as the recent market has indeed seen a very good upward trend, but the more this happens, the more we hope everyone can keep a calm mindset and avoid excessive FOMO. So before the program starts, we emphasize that the content is for sharing only and does not constitute any investment advice.
Today, I'm very happy to invite Shen Yu as a special guest to discuss this topic with everyone. I believe that whether it's about how to hold good assets long-term or the topic of rebuilding positions after selling, both Peicai and Shen Yu will have many stories to share. I look forward to hearing their insights combined with their industry experiences during the exchange.
Today's topic is actually very interesting. A few days ago, Shen Yu's boss seemed to have posted on social media that Bitcoin rose 100 times from 2021 to 2024. So, regarding how to hold good assets and the topic of long-term holding of good assets, why don't we throw it first to Shen Yu's boss to see if he has some thoughts or experiences to share with us?
Shen Yu: OK, first of all, this question is divided into two parts: the first is the definition of "good assets," and the second is "how to hold them long-term."
The first question regarding the dimension of "good assets" may require making a long-term judgment based on current cognition. If an asset has a clear development curve, or if its potential growth trend and key inflection points have already manifested, it may enter the "good assets" basket. Then compare it with other assets to finally determine whether it is a "good asset." I won't elaborate on judging good assets; everyone will have some subjective understanding.
The core question is, after discovering a good asset, how to hold it long-term and "hold on"? Here I want to emphasize that the focus is not on rational content but on psychological content, that is, the non-rational factors. Because human nature tends to lean towards the non-rational, we need to set rules and methods during rational and calm times to ensure that even in emotional outbursts or FOMO states, we can maintain relative rationality. Even after making irrational decisions, these rules can help us avoid overly impacting the overall investment.
How to build this framework, I believe, is a crucial system. This involves so-called position management. When I first entered the field, an experienced senior told me about the importance of this skill. After years of practice, I summarized a "Four Wallet Rule," dividing assets into four parts.
The first is the cold wallet, mainly used to accumulate core assets and set various operational barriers to make it difficult to easily access. When you are in a FOMO state and want to sell most of your assets, you will find that it requires a series of operations to achieve, and this period may help you calm down. Typically, this wallet accounts for over 60% of total assets.
The second is the warm wallet, mainly used to manage assets and provide stable cash flow support to maintain a stable mindset, especially in extremely pessimistic market conditions. This part of the assets accounts for about 20% to 30%.
The third is the hot wallet, mainly used for consumption and speculation, such as trying new products or buying high-risk operations like NFTs. This portion of the assets is very small, only accounting for a small amount of funds. A characteristic of the hot wallet is that if its assets grow significantly, the profit portion needs to be promptly transferred to cold or warm wallets to avoid long-term risks.
Finally, for the fiat wallet, I adopt a strategy of "only withdrawing and not recharging". The fiat wallet is mainly used for living expenses, and I follow a "4% principle", meaning the assets in the fiat wallet and the interest it generates can cover my annual expenses. Even if other wallets' assets incur losses, the fiat wallet can still ensure my daily living expenses, helping me maintain a state of financial independence.
Through this system, I can maintain emotional stability in short-term FOMO or irrational states. Even if the assets in the hot wallet go to zero, it is within an acceptable range, because these risks were anticipated in my rational state. At the same time, for some "jealous" assets, like meme tokens, I will experiment with a hot wallet, so even if it fails, it won't affect the overall plan.
This is my core strategy and mindset management method when holding assets for the long term.
Cognition and belief determine whether one can hold good assets long-term.
Peicai: I think, from my own experience, cognition is the most important. If you do not have faith in an asset, when its price rises too much, to be honest, it is hard to hold on. Especially many times, the market fluctuates repeatedly.
I also believe that impulsiveness is a problem. Many people get distracted by pursuing some cash flow businesses or ventures, which instead become obstacles. I can share two cases.
The first is about Litecoin. During the period from 2017 to 2018, we held quite a bit of Litecoin, which rose from 20 RMB to over 100 RMB, but then fell back to between 20 and 80 RMB. At that time, we were very fearful, afraid of profit reversal, and ultimately sold at around 80 RMB. However, six months later, Litecoin rose to about 2500 RMB. This reflects that our understanding of the asset at that time was not deep enough, not only for Litecoin but also for Bitcoin. We had very little money at that time, and the need for money was great, making it difficult to hold long-term.
The second case is about Bitcoin. When Bitcoin was around 6000 RMB, we sold half out of fear. At that time, Bitcoin experienced the Bitfinex loss incident, dropping from 6000 to 3000, then rising back to 6000. We sold out of concern that it would drop again, but later, Bitcoin's price continued to rise.
There is also the example of Dogecoin. When Dogecoin rose from $0.002 to $0.02, I impulsively sold it in the middle of the night, only to see the price double or even quintuple the next day. At that time, I did not deeply understand the driving logic behind Musk and did not expect such price fluctuations to continue rising. These experiences made me deeply realize the importance of cognition and expectations.
Now, we hold Bitcoin more steadily because we have long-term optimistic expectations for it. For example, we believe Bitcoin might rise to $5 million or even $10 million each. Precisely because of this belief, when the price rises to $100,000 or $200,000, we do not easily feel the impulse to sell.
Looking back at the early days, our lack of a clear understanding of assets led to many erroneous operations, such as selling Ethereum when it rose from $2 to $6, missing out on subsequent gains.
In summary, cognition is the foundation for holding good assets long-term. Without a clear judgment of the asset's ceiling or understanding the logic supporting its value, it is hard to persist in long-term holding. Strategies like the cold wallet approach and the "sell half" method mentioned by Shen Yu are strong supplements to help control impulses when cognition is insufficient. But ultimately, cognition and belief are key.
How to overcome the impulse for short-term trading and achieve long-term holding of good assets?
Zhen Dong: Actually, we can divide this topic into two parts: first, how to identify good assets; second, how to hold good assets long-term.
We have talked a lot about understanding good assets, such as why we consider Bitcoin and Ethereum as good assets, or why we think Tesla is a good asset. This requires knowledge and perspective, such as understanding financial knowledge, cash flow, and traditional investment theories, including learning about the cyclical theories of investment masters like Buffett and Munger. Additionally, in the crypto space, we also need to understand complex systems, non-linear growth, and innovation diffusion models, especially in the internet era, where the speed of information and knowledge dissemination is faster than ever, providing us with more possibilities for understanding good assets.
The biggest enemy of holding good assets long-term is the enthusiasm for short-term trading. Many people confuse long-term holding with short-term trading, which is a cognitive error. For example, many people rely on short-term trading to generate cash flow to meet living expenses, but such behavior essentially disrupts long-term investments. Especially those who have just accumulated their first bucket of gold are more easily affected by short-term price fluctuations.
From my observation, many people attempt to profit through high-frequency trading during short-term market fluctuations, such as taking profits immediately when prices rise by 20% or engaging in short-term operations due to favorable expectations from events like elections. Such behaviors might earn them some money in the short term, but in the long run, this approach often misses out on the greater returns of good assets.
The way to solve this problem is to clearly distinguish between funds for short-term trading and long-term investments. You can allocate a portion of your mental account for trading, but core assets must be held long-term. It's like the founder of Nvidia; if he had retained half of his shares, or even 1/10, he would have reaped huge rewards decades later. Similarly, for crypto assets, holding Bitcoin or Ethereum for the long term may far exceed frequent trading.
Regarding the issue of heavily investing after selling, I believe the core lies in recognizing one's limitations and promptly correcting mistakes. For instance, when you realize your view is biased, you should take action to rebuild your position immediately. This process requires a rational and humble attitude. Rationality is about continuously making investment decisions with positive expectations, while humility is about acknowledging and correcting one's mistakes.
Finally, I want to emphasize that whether for long-term investment or heavily investing after selling, continuous learning and adjustment are necessary to truly achieve the long-term value of compound growth. Mistakes are not scary; what is scary is not correcting them. Holding assets is akin to interpersonal relationships; when misunderstandings arise, apologizing and repairing the relationship may be the best choice. Sincerity and openness are always the cornerstone of success.
How to hold and heavily invest in good assets long-term based on cognitive and monopolistic advantages?
Odyssey: Regarding long-term holding of good assets, I believe there are two key points: cognition and longevity.
On recognizing this point, it can be divided into two aspects: rational understanding and emotional understanding. I resonate with Peicai's viewpoint that "buying and selling are symmetric". When you buy impulsively, you usually sell impulsively too. If you buy after careful research and deep thought, you will also be more rational when selling, rather than acting on impulse. This symmetry in buying and selling often reflects the combination of cognition and emotion.
Building an understanding of good assets requires a process. Many people mistakenly believe they should fully understand the potential of an asset from the start, such as the value of Bitcoin or Ethereum when their prices were very low in the early days. However, information about the world gradually reveals itself as uncertainty decreases over time. The construction of understanding requires continuous updating of judgments and validations, such as observing whether an asset reaches certain monopoly critical points or exhibits network effects.
Taking ChatGPT as an example, it has strong technological advantages but has not demonstrated bilateral network effects and strong monopolistic characteristics. Therefore, when investing, it is necessary to wait for certain critical points to emerge rather than drawing conclusions solely based on short-term user growth or technological strength. Understanding assets through monopolistic advantages allows investors to transcend price fluctuations, only selling when monopoly weakens or stronger competitors emerge.
Regarding long-term holding, I believe there are two layers of benefits: one is the cognitive benefit, that is, the asset has reached your expected product roadmap; the second is the benefit outside of cognition, that is, non-linear growth that exceeds expectations. This type of exceeding cognitive benefits requires investors to have an open mindset and to acknowledge that the potential of good assets may exceed their own imagination.
How to heavily invest after selling? This is a psychological challenge. Many people experience strong psychological barriers after selling, especially when it involves pride or the desire for self-validation. This psychological pressure can hinder rational decision-making. My advice is that making mistakes is not scary; the key is how to cope with them. If you can view correcting mistakes as an achievement, then heavily investing after selling is no longer an act of "losing face" but a correct choice based on new cognition.
In terms of specific operations, I tend to gradually increase my positions as the asset's product roadmap is realized, while looking for opportunities during short-term market adjustments and favorable news. For example, some recent policy changes by Tesla may temporarily impact profits but enhance long-term competitive advantages; such opportunities are good times to increase holdings.
In summary, the core of investing is to continuously update cognition, acknowledge mistakes, and adjust strategies to ultimately maximize long-term value.
From others' lessons to self-growth: How to establish a long-term investment strategy amidst uncertainty.
Odyssey: I want to ask Shen Yu a question. Earlier, you mentioned that when you first entered the field, you did not understand the position management and psychological accounts mentioned by your predecessors. So what experience led you to build this system now? Was it due to experiencing some major lessons that brought about this change?
Shen Yu: Actually, I have seen many others' lessons, especially some impressively impactful cases. I will give two examples to illustrate.
The first example is about a selling story. In 2012, there was a person in the Chinese Bitcoin community with a traditional financial background named Lao Duan Hongbian. He initiated a fund, raising 3 million RMB. At that time, Bitcoin was priced between 30 to 50 RMB, and he used this fund to accumulate a large amount of Bitcoin, some of which he purchased from me. However, when Bitcoin's price rose from tens of RMB to hundreds of USD, he liquidated the fund. Subsequently, Bitcoin continued to rise to 1000 USD, but he became an opponent of Bitcoin. This is a typical case of selling after failing to adjust.
The second example occurred on December 8, 2013. At that time, the People's Bank of China issued a Bitcoin-related policy, causing Bitcoin's price to drop from 8000 to 2000. I witnessed a friend selling out his entire position on the Bitcoin China platform, directly crashing the price to 2000. These individuals, due to psychological trauma, never returned to the Bitcoin market.
I have also experienced similar lessons, such as selling Litecoin and Dogecoin early. Through these experiences, I gradually realized a fact: everyone is irrational. We need to be honest about our emotions and behaviors. While many mistakes may seem ridiculous in hindsight, if the situation were to repeat itself, there is a high probability we would make similar choices.
I have also tracked my trading decision win rate, which is about 40% to 43%, never exceeding 45%. Therefore, I began to write a "decision log" to document the background, emotions, and future predictions of significant decisions, and then regularly review these decisions, analyzing whether I regret them and whether there are areas for improvement. This made me realize that the world is full of uncertainty; even if you believe a certain technology is excellent, the market may not respond favorably. Therefore, we need to face this complex world with an open mind.
Mistakes are essentially feedback from the world, and the most painful mistakes are often the key to growth. When we gain genuine and effective information from mistakes, it is important not to get caught up in emotions but to improve ourselves through reflection. I have witnessed many people rise from scratch to repeated ups and downs, and I have found that those who can survive long-term in the crypto space, regardless of their background, share a common trait: they maintain an open mind and a growth mindset.
In summary, these experiences have made me realize that I am not good at trading, but through observation, learning, and reflection, I have gradually built a position management system that suits me. This system helps me better manage emotions and assets in an uncertain environment, achieving long-term investment goals.
How to avoid investment traps through hierarchical management?
Odyssey: I have another question, which has two layers: the first layer is how to recognize mistakes, and the second layer is how to effectively reflect and attribute them. Some people, for instance, after selling some meme coins, reflect that they should have held onto such assets indefinitely and not sold them. But this kind of reflection might lead to another problem, such as ultimately causing assets to go to zero. How do you ensure that your reflections are correct and do not fall into new traps? For example, some people hold onto zero-value coins but continue to allocate them using conventional position management methods, resulting in exacerbated losses.
Shen Yu: There are certainly coins that have gone to zero, and I have held quite a few. However, my position management has a significant premise: the allocation of assets is primarily managed according to market value or certain proportions, rather than simply being evenly distributed. Therefore, different assets have clear emphases in my system.
Many assets in my position management system do not even qualify for the threshold of cold wallets. They mostly sit in entertainment-type positions, and to be promoted to the core asset level of cold wallets, they need to go through long-term observation and deep thought. This is a lengthy process, and typically, assets that have not experienced one or two complete market cycles find it hard to rise to higher allocation levels.
This hierarchical management approach helps me more effectively filter and manage assets, thus avoiding falling into new investment traps due to erroneous reflections.
How to identify inflection points and heavily buy back core assets after selling?
Odyssey: Have you ever experienced selling an asset only to buy it back? For example, heavily buying back core assets you previously sold? I know that most of Peicai's Bitcoin and Ethereum were mined back, without the experience of directly buying back large positions, so I would like to ask you this question.
Shen Yu: Yes, for instance, Ethereum. In its early days, when it was two dollars, I bought quite a bit. Later, when it rose to twenty dollars, I sold off a significant portion of my holdings. When Ethereum rose to around 140 RMB and stabilized for a while, I again gradually liquidated most of my positions, leaving about 1/4 as an observation position.
At that time, a key event was the Ethereum hard fork rollback, which fundamentally challenged the core logic of POW. This weakened my confidence in Ethereum, and I basically liquidated my holdings. Later, as the DeFi wave emerged, Ethereum began to exhibit some new characteristics and the embryonic form of its ecosystem. When these characteristics gradually emerged and reached a critical point, I bought back Ethereum heavily.
I believe this inflection point is very crucial. It allowed Ethereum to gradually develop a certain monopoly, even though I may not have fully realized it at the time. As a front-line observer, I judged it had become a core asset worthy of heavy investment by continuously accumulating cognition. So this is a typical case of buying back after selling.
How to filter and discard assets that are not suitable for long-term holding?
Odyssey: Some people may feel that you can easily buy back assets because you have enough redundancy and do not need to worry too much about whether the bought-back assets go to zero. But conversely, if you find it easy to buy back assets heavily, how do you choose to discard them when you realize some assets are not suitable? For example, regarding the NFTs like BAYC we discussed about a year ago, do you plan to hold them until they go to zero, or do you have other plans?
Shen Yu: Regarding NFTs like BAYC, I did not heavily allocate them at that time, but rather kept them in an observation position. That batch of NFTs was essentially allocated with a consumer mindset, feeling that they had certain potential but might also fail. In my overall asset allocation, I did not let the NFT position exceed the critical value, so most were kept in hot wallets or consumption wallets, with only a few NFTs that had rare value or emotional significance moved to cold wallets.
My basic thinking is that for me to heavily invest in an asset, it needs to go through long-term observation and in-depth thought. It must meet many conditions and cross a certain important inflection point that I deem significant before being categorized as a core asset. Prior to this, these assets are more about the process of establishing understanding, using consumption or gambling-type funds for small allocations. For assets that do not meet the heavy investment criteria, I will maintain a certain level of flexibility rather than blindly holding them until they go to zero.
Which is more difficult: discovering good assets or heavily investing after selling, and why?
Shen Yu: I have a question for everyone: Where do you think the difficulty lies in discovering good assets and heavily investing after selling? Because from my perspective, discovering good assets is not difficult; good assets are often visible to everyone. The key is whether you dare to heavily invest.
Odyssey: I also think the difficulty lies in heavily investing after selling. The ability to heavily invest after selling and the ability to heavily invest themselves are essentially not different; both require very strong psychological construction. It involves several core abilities, such as your ability to gradually increase positions as the asset's monopoly becomes evident, and your ability to calmly correct mistakes after facing them. This means you not only need to judge the asset's value but also be able to exit timely when you judge wrong and even re-enter at a higher price.
Peicai: My view is similar. I believe the challenge of heavily investing is much greater than discovering good assets. Many people have held Bitcoin, but most of them take profits when the price rises, and only a few can hold long-term or even buy back heavily. Even among my relatives and friends, very few sold Bitcoin and were able to buy back, let alone heavily invest.
The difficulty of heavily investing lies in human nature's natural discomfort with large transactions. For instance, even when I researched Tesla very thoroughly, I was still limited by psychological barriers when buying. As the absolute value of the chips increases, even if the proportion is not high in the overall assets, the psychological pressure from the sheer amount can be overwhelming. This phenomenon is similar to the completely different decision-making logic we apply to small daily expenses versus large real estate transactions.
At the same time, the difficulty of heavily investing after selling also lies in the attitude towards facing mistakes. Admitting mistakes requires courage and the ability to overturn existing logic and reconstruct one's cognitive system. This is an extremely high-energy process, and many people prefer to cover up mistakes with simple assumptions rather than thoroughly reflect. Misattributing mistakes and the obsession with image also exacerbate this difficulty.
From a philosophical perspective, such as Popper's philosophy of science, the progress of human knowledge essentially relies on conjectures and refutations. Making mistakes and correcting them is the only way to discover new knowledge. This understanding may help us face mistakes more calmly, but in actual investments, emotional pressure and psychological anchors remain significant obstacles.
For example, my price understanding of Bitcoin was influenced by early experiences. Although I understand the long-term logic of Bitcoin, historical price anchors make me feel uncomfortable about buying at high prices. A similar phenomenon also occurs with Tesla; I feel comfortable making purchases within a certain price range, but when the price deviates from this range, regardless of whether it rises or falls, it becomes difficult to take action.
In summary, the difficulty of discovering good assets is much lower than that of heavily investing, while heavily investing after selling is even more challenging. It not only involves asset judgment but also requires facing one's psychological and cognitive challenges, which are not on the same difficulty level.
Could not making money as a goal lead to making more?
Shen Yu: I want to ask Odyssey another question. I have noticed that aside from arbitrage, which has certain returns, when you do something not directly for making money, it often becomes easier to make substantial profits. Conversely, if the goal is directly to make money, the difficulty of making money seems to increase exponentially. What do you think about this phenomenon?
Odyssey: Haha, I completely agree with your view. I think this relates to the distinction between process-oriented and result-oriented approaches. When the goal focuses entirely on the result of "making money," the volatility of money itself can lead to a decline in decision quality. For instance, Tesla's stock is priced at over $300, but the actual value of cash is very difficult to measure. If you keep staring at these fluctuating results, your judgment and decision-making will be constrained by them, making it difficult to make stable choices in the end.
Rational investment requires us to transcend current fluctuations and see the long-term consequences. The essence of investing is making future decisions based on past information, so it needs to combine rationality, insight into the future, and process orientation. If one merely focuses on the constantly changing metric of money, it is easy to fall into short-term fluctuations, leading to chaotic decision-making.
Overall, I completely agree with your point; this shift in thinking is indeed a very important aspect of investing.
