A couple of days ago, a reader commented that they had been following me for two years and noticed a change in my attitude towards Ethereum. I said yes, my attitude has indeed changed, but not towards ETH, but rather towards BTC and Sol.
The concept that runs through my investment career is how to choose the right target at the right time. It sounds simple, but in reality, it is very difficult. The market is always changing, and there will always be many things that seem correct but become incorrect after a while. The truly correct things are just a few.
Therefore, investment is about subtraction, not addition. The progress in investment ability lies in being able to find the 'correct' answer among those 'seemingly correct' options. Of course, this answer may not necessarily be right, as no one can be omniscient, but doing this is the closest way to correctness and the most likely way to make money.
Now is also a pivotal moment.
On a larger scale, the U.S. is shifting from an interest rate hike cycle to a rate cut cycle. Will future capital flood in to support a new wave of technological innovation, or will it just pile up in circles creating bubbles? On a smaller scale, after experiencing the last round of excessive technological investment, will the crypto space transition from value disillusionment to a gambling market, or will it return to value-driven leadership? Narrowing the focus again, will it be BTC, ETH, or Sol, and how should we allocate our funds? I believe many people are confused, but this confusion is based on price; when it goes up, everything seems 'clear,' and when it drops, it becomes 'confusing.'
It shouldn't be this way. The other function of investment reduction, as mentioned earlier, is to allow for closer observation of holdings. For me, price is not the core of selection; fundamentals are. A low price during a fundamental collapse is a disaster, while a low price during normal fundamentals is an opportunity provided by Mr. Market. How to define 'good and bad' will be discussed based on my personal views. Of course, if others have opinions, we can exchange ideas, but I might choose not to listen...
My biggest gains have come from Ethereum, followed by Bitcoin. Initially, from 2018 to 2019, Bitcoin held nearly 95% of my portfolio. Starting in March 2020, I began increasing my Ethereum holdings, and during the DeFi Summer, more and more funds shifted to ETH and Ethereum's DeFi ecosystem, such as AAVE and Uniswap. The entire Ethereum ecosystem had a larger position in the 2021 bull market bubble; during this period, my Bitcoin + Ethereum position never dropped below 70%, while in 2021, DOT and DeFi accounted for 30%. As of this year, Bitcoin and Ethereum account for 60%. Due to Ethereum's continuous depreciation against Bitcoin over the past year, Bitcoin has become my primary position, with Sol and other tokens making up 25% and about 15% in USDT.
This position has changed as my understanding of these cycles and the review of mistakes have evolved. This change is also what I will discuss next.
~In 2019, over 90% Bitcoin, no ETH, no SOL.
Relative to many old OGs, my entry into the market was relatively late. In fact, I heard about BTC in March 2015, but limited by my knowledge channels, all I found on Baidu were pyramid schemes and Ponzi schemes, so I let it go. It wasn't until I participated in investment due diligence for Bitmain's financing at a venture capital firm and witnessed Sequoia Capital, IDG, and Huaxing Capital entering Bitmain that I began to take it strategically. I spent three months reviewing almost all the information and materials about Bitcoin, immersing myself in foreign forums to see discussions about Bitcoin and blockchain technology. A few months later, I witnessed Bitcoin surpassing 20K for the first time, which was in 2017.
The cyclical collapse of capital occurs because rules are trampled by centralized power, as this brings enormous benefits. The ideology of capitalism is profit-seeking, so financial crises will inevitably recur.
In the past, nothing could solve this problem until Bitcoin appeared, providing a solution through blockchain technology and achieving a state where everyone must abide by the rules, which cannot be transgressed. We call this 'decentralization.'
Such an ideology is advanced and will certainly lead to disruption. My initial understanding wasn't this profound, but it was enough to support me in investing spare money into BTC. However, back then, the price was too high. I began to invest gradually around 6K to 7K in 2018, buying Bitcoin during large dips without worrying about the price.
As I slowly got into the industry, I discovered more. I missed the early Ethereum phase, and I never imagined Ethereum would become so powerful. The investment logic of Ethereum is completely different from that of Bitcoin. Bitcoin is a store of value, while Ethereum is an application that is hard to see and understand. It wasn't until the ICO boom that I suddenly realized I could view Ethereum as a 'country.'
Based on Ethereum, many imaginative and disruptive applications can be developed, potentially achieving a status similar to ‘silver.’ Back then, Ethereum was slow, and many Ethereum killers emerged, such as EOS. Many people were very interested in EOS, but sacrificing decentralization for performance is unacceptable. The logic is simple; today's society is centralized. Even if you lower transaction fees and increase speed, can you outpace banks? Can you ensure better security than banks? I believe that abandoning core competitiveness is a wrong development direction.
In 2020~2021 (first half), BTC 50%, Ethereum 50%, no SOL.
At that time, the entire public chain sector, particularly Ethereum and other public chains, was in a state of disconnection. My past investment experiences have taught me that C2C offers the highest return on investment. Based on this understanding, in March 2020, when the pandemic confined us at home and the market faced a black swan event with a significant crypto crash, I maxed out a few credit cards and borrowed against my micro-loan limit to buy Ethereum.
I can only say I made the right bet. At the peak, Ethereum rose over 40 times, while Bitcoin only increased by over 10 times. The biggest gains came from this, much more than the total income I earned from investing in previous years. In April 2021, I cashed out to buy a house and allocated some into real assets, which strengthened my faith in Ethereum.
In the second half of 2021, the bull market continued, with various new concepts in the Ethereum ecosystem such as NFT, GameFi, and the Metaverse exploding. My crypto assets reached new highs, and my holdings expanded. People can easily become euphoric and have a more optimistic view of the market, leading to continued full-position operations, believing that BTC would definitely break through 100,000. Unexpectedly, the market reversed at this time, dragged into a bear market by the collapses of Terra, 3AC, and Celsius.
At this time, assets experienced their first significant shrinkage. When I was writing articles, I was rather calm, mainly to encourage everyone, but inside I wasn't feeling great. Although my cost basis hadn't been broken and I was still profitable, retracing over ten million in profit would still make me feel anxious and regretful in the quiet of the night.
You can't always be fully invested; that's the first lesson. The second lesson is that crypto has cyclical characteristics. When the market is euphoric, you should reduce your positions in a timely manner, especially for coins other than BTC and ETH. After a bull market, it’s highly likely that many of these will trend towards zero, so you must decisively liquidate and take profits.
In 2021 (first half)~2021 (second half): BTC\ETH account for 70%, DeFi 30%, no SOL.
Speaking of this, we come to the changes in the third position allocation. I have reduced my positions in Bitcoin and Ethereum to 70% and increased my positions in DeFi and DOT to 30%.
The thought process behind such position adjustments is that the crypto industry is in an extremely early stage, where many alpha projects will yield returns far exceeding those of Bitcoin and Ethereum. I should allocate a portion of acceptable positions to invest in them, which will increase overall returns. If I fail, it will only be a 30% loss, while I still have BTC and Ethereum as ballast, preventing me from being knocked out.
The emergence of DeFi in 2020 amazed me. If BTC completed decentralization within the monetary system, then DeFi made a significant step forward in decentralization within the finance and application layer, allowing everyone to gain market-making profits, thus driving new wealth effects.
This is a huge market. At the end of 2019, I excitedly said that DeFi would lead the next bull market. Aave, Uniswap, and SNX are the absolute leaders in major tracks like lending, exchanges, and synthetic assets. Imagination needs to break through the skies. Of course, the highest gains have outperformed BTC. AAVE surged from 25 to 681, a 22-fold increase, while Uniswap and SNX also rose by 20 times.
After DeFi, there’s also cross-chain DOT, which is very important. The isolation of blockchains must be broken; cross-chain is especially vital, but it cannot rely on protocol projects. Due to high capital and low security, it can only be made into a public chain. Thus, I chose DOT, which also surged over 20 times.
Looking back at the last bull peak, this allocation seems correct. The mistake lies in being overly optimistic about the future, significantly underestimating the cyclicality of the crypto space, leading to not taking profits in time. The price dropped back to where I bought it, and some small coins even saw further purchases at high levels, resulting in substantial losses.
What I missed out on was Terra and Solana, as I didn’t pay attention to them in advance. Many past so-called Ethereum killers have emerged, but they all emphasized performance. This leads to the biggest question: do you believe blockchain technology will improve? I do. So will these performance-driven public chains be replaced by the next public chain? Most likely.
Thus, every cycle will yield some new technological public chains. EOS, Sol, and even the current Apt and Sui are not sufficiently decentralized and may be replaced. As for the so-called super performance, high TPS seems to be just that. For example, after this year's inscription craze, their bottom lines have been exposed. Thinking back, missing out at that time isn't so much of a loss; even if I had bought in, I wouldn't have succeeded in cashing out at the top.
At this stage, I think there won't be any disputes over ETH and Sol. Everyone will generally agree that ETH will go further than Sol, right?
2022~2024: BTC\ETH account for 65%, Sol\small coins 20%, cash 15%.
A shift occurred in 2022. The biggest political correctness in the industry starting in 2022 is 'anti-VC.' As you can see, none of the star projects listed have avoided a drop in value. This period marks a mean reversion of the VC bubble.
The VC funds accumulated from 2021 to 2023 reached as high as 80 billion. A large number of VCs were FOMOing into high-return opportunities. There are only so many good teams, compelling narratives, and projects with substantial funding capacity, leading to a ridiculous premium. At the current price, there is still 155 billion USD of selling pressure in the future, leaving no room for the secondary market. This anti-VC wave has even affected Ethereum and all crypto applications.
Therefore, you will see that after 2022, regardless of what new concepts emerge, I have not seriously engaged with them or bought much. Depin, RWA, modularization, and even Layer 2 have hardly been mentioned since the airdrop frenzy. These tracks and the projects within them have value, but their prices are too high.
Speaking of price, we shouldn't overestimate ourselves. Those who truly have a significant impact on price are the old money that breaks into the crypto space. The traditional VC giants' defeat in the crypto industry from 2021 to 2023 has made more capital retreat. Before a new 'big pie' is drawn, I fear that the money capable of driving prices to surge is in a state of 'once bitten, twice shy.'
You see, the net inflow into ETH ETFs is negative 497.92 million. The reluctance of big money to invest in Ethereum reflects a cautious approach towards web3 and the crypto application layer.
Bitcoin, unaffected by the winds, benefited the most. Especially after BlackRock opened a risk exposure with the BTC ETF, the total net asset value of Bitcoin ETFs reached 72.055 billion, with total inflows of 23.023 billion USD. In U.S. stocks, even a small company like MicroStrategy can achieve top ten trading volume.
Polarization is becoming increasingly evident. Large funds are gaining more trust in Bitcoin, and the time for BTC to reach 1 million dollars is shortening, with consensus growing stronger and certainty increasing. The entire market has turned into a situation where Bitcoin is far ahead, with other projects playing their respective roles.
At this moment, if I had 1 million to choose, I think I should all hold large positions after Bitcoin's sharp decline. This is the most certain way to bet big.
But if I were to enter like I did in March 2020, wanting to bet small to win big, I would have to choose between ETH and Sol, and the questions to ponder are only two:
1. Will ETH, which hasn't risen this year, rise in the future, and will the increase exceed BTC?
2. Will Sol, which has been rising this year, continue to rise? Will its increase surpass BTC?
Regarding Ethereum, an old OG commented that Ethereum's past development benefited from timing, location, and human factors, aided by regulatory restrictions on Bitcoin that created demand for ETH as a financial token; the ICO era intensified this demand; then came the DeFi boom and POS, which greatly increased ETH's value.
His question is that Binance's IEO has caused BNB to take away Ethereum's share of financial tokens; now Sol has taken away Ethereum's share of the casino. Will new narratives continue to emerge in the future? Will Vitalik become a black swan for Ethereum? Uncertain.
I actually have a different perspective. The existence of the crypto industry is decentralization. Without the ideology of decentralization, it has no foothold. Because it cannot compare with centralized finance in terms of industry maturity, resources, talent, legal aspects, and practical functionality.
Once crypto loses its decentralization, regardless of how large the bubbles may get, it remains a poorly conceived concept, ultimately worth nothing and trending towards zero. And we are not the organizers; we cannot predict when the bubble will burst, nor can we speculate.
Crypto cannot have only one BTC; BTC is just a store of value. It needs applications to generate progress within society to disrupt web2 industries.
Ethereum represents the application layer of crypto because, as it stands now, no other project can match Ethereum's scale, along with the highest level of decentralization and security (excluding BTC).
Can Sol achieve this? No, because it is a centralized structure. The reason Sol has outperformed Ethereum in response speed from the last DeFi and NFT cycles to this round of MEME is that it can rely on centralization to 'concentrate efforts to accomplish major tasks,' plan the economy, and coordinate operations. If it were sufficiently decentralized, its response speed wouldn't be so quick.
However, like the Soviet Union, why did they ultimately lose? Because they couldn't innovate technologically and could only copy quickly. I previously asked everyone a question: can you name any ecosystem projects that emerged from Ethereum? AAVE, CRV, DYDX, Layer 2, and even NFTs like BAYC. What about Solana's ecosystem projects? Pump.fun? What else?
This is the biggest question. The future of crypto looks at the application layer, not the casino. Many say that the world belongs to the bottom, but Sol does not belong to the bottom; it is about cutting the bottom.
Returning to those two questions, many are criticizing Vitalik and the Ethereum Foundation for selling tokens, but has the fundamental situation of Ethereum changed? From its inception until now, Ethereum has become much richer than before, maintaining the highest level of decentralization and security across the industry. The fundamentals haven't changed. Therefore, if ETH doesn't rise, it just means opportunity.
But can the application layer be completed in this cycle? I don't know. Perhaps in the next round. Holding ETH requires cross-cycle long-termism. After breaking through a market cap of 300 billion, the future imagination is vast.
Can Sol still rise in the future? Uncertain. Can centralized planning capitalize on the NFT and MEME hotspots, and will they catch the next trend? I don't know, and it is not decentralized. Given the lack of substantial value, rising so much is inherently problematic. Is it due to a few big players manipulating the market? What will happen if they stop? Will there be new projects with better technology and stronger backing in the future? I think so.
Thus, the systemic risk of Sol is far greater than that of ETH, and it is not a target that can be held long-term. It is merely the most certain one among cyclical targets. I will definitely reduce my holdings in Sol in this cycle.
As mentioned at the beginning of the article, my attitude towards Ethereum hasn't actually changed; it's just that my certainty regarding Bitcoin is approaching 100%. As for Ethereum, I can't be certain after ten years; within ten years, it will still be second only to BTC, while Sol is merely a cyclical target.
My money will continue to grow, so in the future, I will increasingly consider systemic risks, and the position in BTC will continue to rise. Other positions will decrease.
However, friends with small principal amounts always want to take some risks at the beginning, just like my choice on March 12, 2020. But even when I took risks at that time, it took me a year to reach a sufficient multiple, while waiting three years for Bitcoin to hit 70K.
Short-term price is not our standard for judging projects. What we need to do is to determine whether the future fundamentals have the potential to collapse when prices are low. Of course, this is said to investors; those who want to get rich overnight probably won't listen.
That's all I have to say.
The crypto space is like the sea, and you and I are like boats. Our understanding will be the lighthouse guiding us through the storm.
