Original compilation: TechFlow

Original compilation: TechFlow

It’s no secret that cryptocurrencies represent the cutting edge of technological innovation right now. With human and financial capital entering the industry, it would be overly optimistic to think that one person can keep up with the industry as a whole.

12 months ago, the game was relatively simple. Find underappreciated DeFi tokens on Ethereum before most of the market pays attention and profit when capital finally spins. Back then, returns were high and opportunities were effectively identifiable. Today, we have countless different verticals (DeFi/GameFi/NFTs) blossoming in multiple ecosystems (SOL/AVAX/ETH/LUNA, etc.).

Given the vast amount of information that currently exists, identifying signal from noise is the most important skill to drive returns.first level title

simplification is key

For 99% of investors, annual performance can be attributed to 2-3 specific decisions. Going long $SOL or $LUNA in January, spotting Axie at $1, taking turns leaving DeFi 1.0 after the big Q1 2020 rally…

Each of these decisions can make your year easy if you're a professional fund manager, or net you a 10x gain as a retail investor. While most people are hindsighted, the point remains – each investor faces only a few critical crossroads that reflect the vast majority of their gains.

The tricky part, then, is how to identify these intersections in real time. We make countless decisions every day, and as such, it's impossible to know when those decisions will arise. However, great investors/traders will eventually grasp this in some form (whether consciously or subconsciously).

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betting thinking

At its core, an open market investment position reflects an adverse commitment to a particular idea. They express the belief that the market is wrong, but that over time the market will reprice assets in line with investor expectations. Every investment has 3 main phases, each with its own set of decision making methods.

Phase 1: Entry - Is it a good investment? How big are we going to make this position?

Phase 2: Monitoring - Is the investment theory working? Should we change our position based on new information?

Phase 3: Exit - Should I lighten my position because I was wrong? Should I lighten my position because I'm right and the investment thesis has worked? Should we sell the entire position or just a portion?

The easiest way to reduce the number of decisions is to minimize the number of active positions in a portfolio. A good rule of thumb is to not have more than 10 active positions. By doing this, you force your holdings to be concentrated and more steadfast through the scarcity factor.

Is Token A a better investment than my current top 10 positions?

This direct comparison provides a clearer risk/reward framework for evaluating new opportunities. The size of the bet is just as important as the number of bets, and a good framework I rely on is the 2/20 rule.

Exploratory: 2% of the portfolio

Imagine that you discover a promising new token for the first time and believe it is the future of finance. You do a little DD (due diligence), summarize what you know and what you need to discover, and overall feel good about the bet.

2% is enough to get you in on the action (10x = 20% return), but small enough that it's a bee sting to your overall return if you're wrong.

Balls Deep: 20% of the portfolio

After getting excited about your new position, you start digging in hard, covering all the bases of due diligence. You've crafted a clear thesis, have an actionable catalyst, and are ready to earn a life-changing fortune.

While you can always beat 20%, the 10x result is doubling your combo. If you hit a home run (50-100 times), that one bet is enough to get you through the year.

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Impulse suppression

The cryptocurrency market is a tricky business. When looking for a dopamine high moment-to-moment, we tend to blind ourselves to the big picture. In addition to constantly battling the PvP marketplace, you're battling your inner demons - greed and fear.

For me, the 24/7 exposure to the market had adverse side effects on both mental and physical health. I have found that a mental break away from the markets is necessary in order to be at the peak of my abilities.

Personal experience tells me that a 2-3 day break yields the best results. Long enough to settle the mind, but short enough that you don't miss out on the entire cryptocurrency bull and bear cycle.

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discipline

This is one of the most underrated aspects of investing. You can have the most detailed plan or the most thoughtful framework, but if you can't stick to the plan, it's worthless. This is an issue I'm still struggling with, and I've been paying for it recently too. Execution of the plan is almost as important as the plan itself. Long something and it has hit your stop? Cut off the deal. The catalyst is over, but the price hasn't risen yet? terminate the transaction. Constructing a bullish narrative and price target is easy. If the situation is not good, it is difficult to develop and execute a fallback plan. Interestingly, this is also the most important process that will save you when the market goes against you.

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the journey, not the result

At the end of the day, you have to remember that investing is a long-term process. The crypto currency market often misrepresents this fact with a remarkable 1000x TO DA MOON, deceiving ordinary people. Lucky market players will come and go, but those who focus on methodology, constantly iterating the framework and refining the process will stand out over time. The seeds you plant today will be reaped many times over in the future