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 Altcoin have fallen by more than 60% in the past few months. It is indeed not easy to survive such a market downturn.
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 that 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 view, 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 market, the returns of these 5 currencies exceeded 100 times:
- 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 yield 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 managed to build a strong community around their projects. A founder with a strong media presence and a great personality can significantly contribute to the success of their 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.
- Collaboration with web2 and/or web3 giants
Regular investors like to see their projects announce partnerships with other large web3 projects or highly popular web2 companies.
Polygon, Solana, and Terra Luna attracted a lot of attention by doing this.
Partnership announcements can trigger some big token gains during a bull market.
- Reasonable Token Practicality 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 price of a token, and this has happened many times this year. You can use a tool 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
- Listed on major CEX
- New product launch
- Fundraising Announcement
- Major Partner Announcements
Catalysts can significantly boost the price performance of a token, which is why I usually only invest in projects that have major 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 won’t buy that token anymore. 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 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-digit APY rewards 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, it is much more difficult to identify the price levels that are really suitable for selling.
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.
In addition, 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 return 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!
