Author:THE DEFI INVESTOR
Compiled by: TechFlow
Many people have recently lost confidence in the continuation of this bull market cycle.
Their disappointment is understandable, considering that many of the top altcoins have fallen by more than 60% in the past few months. Surviving a market downturn like this is not easy.
However, there are many signs that this cycle is not over yet.
Of course, nothing is certain in financial markets. But I do think the risk/reward for being bullish is very attractive at this time.
In this installment, I will explain why I expect an altcoin season to occur later this year, and the strategies I am implementing now to maximize my profits during the next rapid upward phase.
Let’s dig a little deeper.
There are many reasons, but in short, the main reasons are as follows:
Stocks at all-time highs
The Federal Reserve is expected to cut interest rates later this year
Total stablecoin supply keeps increasing
Major US presidential candidate now supports cryptocurrency
Traditional financial institutions (such as BlackRock) begin to pay attention to cryptocurrencies
About $16 billion in cash will be distributed to FTX creditors in the coming months — many of whom are likely to plow the money back into the market
The third quarter is historically the worst performing quarter for cryptocurrencies, which may explain the recent decline.
Source: CoinGlass
However, I am very much looking forward to the fourth quarter.
With the US election, Fed rate cuts, and FTX cash redemptions planned for Q4, it’s hard for me to imagine a scenario where BTC has already peaked.
So far in this cycle, BTC dominance has been rising. Altcoin seasons usually begin when this trend reverses, which I think could happen in Q4.
Betting on the right projects
Now that I’ve shared my bullish thesis, I also want to talk about my strategy for identifying tokens that are likely to outperform in the next market phase.
A great way to become a better investor is to study the market's past.
For example, I think the best way to learn how to catch 10x potential coins is to first analyze the common features of tokens that have already achieved 10x growth.
In the last bull run, these 5 coins saw returns of more than 100x:
SOL - The coin of Solana, the most popular non-EVM blockchain.
LUNA - Terra Luna's coin, the algorithmic stablecoin experiment behind the project ultimately failed.
MATIC - Polygon's coin, one of the most popular Ethereum L2 projects.
SPELL - Token for Abracadabra.money, a DeFi lending platform that enables very high yielding degen strategies.
FTM - Fantom's coin, one of the fastest growing blockchains in the ecosystem during the 2021 frenzy phase.
I think their huge success can be attributed to a few main factors:
Leaders - Do Kwon is the leader of LUNA. Andre Cronje is the leader of FTM. Daniele Sesta is the leader of SPELL.
All three are charismatic and have successfully built a strong community around their projects. A founder with a strong media presence and a great personality can significantly contribute to the success of his project.
Ordinary investors like to invest in projects with strong leaders.
Most projects with leaders don’t perform well in the long run, but you can make a ton of money by betting on them before the bull run ends.
Innovative products
No new Uniswap fork is needed.
Your best chance is to bet on innovative projects that push boundaries rather than just copy competitors.
This doesn’t mean they have to build something completely new.
But ideally, you want to bet on a project that builds a product that is 10x better than its competitors and releases it faster.
A good example that comes to mind is Pendle.
Pendle is the first yield trading protocol to enable trading airdrops and has benefited greatly by enabling this for the first time.
Moreover, its team keeps announcing integrations with popular protocols, which helps Pendle maintain its position as the largest revenue trading protocol.
Partnerships with web2 and/or web3 giants
Regular investors love to see their projects announce partnerships with other large web3 projects or highly popular web2 companies.
Polygon, Solana, and Terra Luna have attracted a lot of attention by doing this.
Partnership announcements can trigger some big token gains during bull markets.
Reasonable Token Utility and Low Token Issuance
SOL, MATIC, FTM, and LUNA are all used to pay gas fees and secure the blockchain network, while SPELL has a revenue sharing model.
Simple governance tokens like UNI also performed well in the first half of the 2021 bull run.
However, I believe that most of the outperformers in this cycle will be more than just simple governance tokens and will have some additional utility.
Some potential token use case examples:
Fee discounts
Revenue Sharing
Paying network fees
Buyback and destruction mechanism
Providing rewards to protocol users
Access to exclusive products (e.g. access to the web3 launchpad)
Memecoins are an obvious exception, they can perform very well even without any utility, but other than memecoins I generally avoid coins without utility.
Unlock schedules are also important. You don’t want to buy a token whose circulating supply will increase by more than 300% in the next 365 days.
Major token unlocks can significantly impact the token’s price, and they have happened many times this year. You can use tools like Token Unlocks to monitor upcoming unlocks and unlock plans for over 100 tokens.
It’s a good thing that a large percentage of the total token supply is already in circulation.
Major catalysts coming soon
Some examples of catalysts that could have a positive impact on token prices:
A big protocol upgrade
Token Economics Upgrade
Listing on a major CEX
New product launch
Fundraising Announcement
Major Partner Announcements
Catalysts can significantly improve a token's price performance, which is why I typically only invest in projects that have significant catalysts in the near future.
I always ask myself a question:
Why would someone buy the same token as me at a higher price?
If I can’t find at least one good reason, I stop buying that token. High-conviction bets are the ones that can actually make you rich.
My plan for this cycle is to hold up to 10 coins that meet the above criteria. Over-diversification is not worth it if you know what you are doing.
Airdrops: Are They Still Worth It?
Many people have been disappointed with some of the hyped airdrops lately.
LayerZero is a recent example. As airdrops have become increasingly popular over the past few years, many airdrop opportunities are now highly diluted, especially due to the emergence of airdrop bots.
Therefore, most airdrops today have a linear distribution and are no longer based on a tier system (like Jito) to avoid rewarding industrial farmers.
Are linearly distributed airdrops a bad thing?
The problem is that whales are the ones who benefit the most from linear distribution airdrops, which is not a good thing for low-capital users.
Turning $1,000 into $50,000 by farming airdrops is almost impossible right now. But I believe that by farming the right airdrops, you can still make some good money.
The main criteria I look for in a tokenless protocol are as follows:
Strong community - the more active the project community is on X, the higher the valuation of its token is likely to be
Raised money from VCs - The more money a team raises, the higher the valuation of the protocol token is likely to be at launch
The TVL/Total Funds Raised ratio is low compared to other tokenless projects - the lower the ratio, the better, as a high ratio may indicate that an airdrop opportunity is being overfarmed
Polymarket is a good example of a protocol with an excellent TVL/total funds raised ratio.
Ideally, you should be airdropping protocols that people use because they actually find them useful, rather than protocols that are used just for the sake of airdropping.
What about profit taking?
Every bull market creates a new generation of millionaires.
However, data shows that more than 90% of people will eventually give most of their profits back to the market due to greed. This is why you need a realistic exit plan.
For long-term positions, I mainly take profits based on fundamental triggers.
Whenever I start seeing multiple signals that indicated a top in the previous cycle, I start selling using the reverse betting strategy.
The reverse staking strategy is the opposite of staking — it involves selling the same number of tokens at regular intervals.
Some good top signals I look for:
Jim Cramer keeps promoting cryptocurrency
Coinbase Becomes the Number One App in the App Store
Your friends and family start talking about crypto
Several celebrities have started launching their own coins
People show off Rolexes and expensive cars on your X timeline
Useless projects raise tens of millions of dollars in funding
Financial YouTubers start talking about cryptocurrencies more frequently
Google search traffic for "crypto" surges and hits a new high
Ponzi farms offering five-figure APYs attract billions of dollars in TVL
The only top signal we have seen in this cycle is celebrities launching memecoins. This makes me think we are still in the early stages.
Taking profits when BTC or your altcoin reaches certain price levels can also be an effective strategy. But in my opinion, identifying price levels that are truly suitable for selling is much more difficult.
Conclusion
I always try to keep it realistic, so here are my thoughts:
Success in this bull market may be harder than in past cycles. One reason is the surge in the number of cryptocurrency tokens.
Source: Miles Deutscher
Finding good investments is becoming increasingly complicated.
Additionally, price discovery for many new high FDV coins now occurs in the private VC market. Since most new coins start at overvalued valuations, it is difficult for ordinary investors to find tokens that can go 20x or 50x.
This does not mean that there are no more opportunities in cryptocurrencies.
But you have to invest more effort and time to identify them. If you are willing to do that, chances are you won't regret it.
That’s all for now, thanks for reading!
