Author: Edgy - The DeFi Edge

Compiled by: TechFlow

The goal of this cycle is to achieve life-changing returns.

If you want to achieve life-changing returns in this cycle, you need to construct your portfolio correctly. However, the performance of this cycle has been different from our expectations. The price of ETH has remained relatively stable around $3,200, and the full-blown altcoin season (altseason) that we saw in the past has not yet materialized.

More surprisingly, new investment trends emerge every few weeks. If you have been holding Goat or Zerebro (pioneers in the AI field) since last October, your performance may now be below the market average.

Therefore, adapting to market changes is crucial.

The new year is a good opportunity to re-examine and adjust your investment portfolio. I would like to share how I plan my investment strategy, hoping to help you find a method that suits you. For me, dividing the portfolio into different "buckets" is a very effective way to better manage risk and clarify each goal.

It's important to note that I won't provide specific capital allocation ratios. Everyone has different goals and risk tolerance. For example, small-scale investors may be more inclined to take risks, while large-scale investors may be more focused on a conservative strategy.

What I share is a strategic framework to help you find an investment approach that suits you.

Bucket 1: Multi-Year Reserves

Examples: Bitcoin, Ethereum, Solana

Goal: Achieve wealth growth through long-term holding, and hedge against fiat currency devaluation. This part of the capital is to ensure that you can profit steadily over a long enough period. Regardless of market fluctuations, these tokens are core assets held across multiple cycles, and each cycle will make this investment bucket grow larger.

I consider this part of the capital as an "untouchable" reserve. Capital will flow into this investment bucket every cycle, but never flow out. All profits will ultimately go into this bucket.

In a bull market, you may feel FOMO. When you hear about a new token with huge potential, but find that you don't have any extra capital, you may be tempted to use the reserves in this bucket:

"I'll sell some Bitcoin, jump into this new coin. Once it goes up 10x, I'll buy Bitcoin back!"

Such plans often fail to materialize. Even if you do make 10x, you may feel like a genius and continue to take risks, until you eventually give the capital back to the market.

The core mission of this part of the capital is defense. No matter what happens in life, I won't have to start from scratch. Bitcoin's value may reach $1 million in the future. You certainly don't want to regret selling Bitcoin to chase those shitcoins that ultimately go to zero.

In the past, I used to allocate Bitcoin and Ethereum equally in this investment bucket. But later I changed my strategy and now lean more towards Bitcoin. The reason is simple: Bitcoin, as a digital gold, is irreplaceable, while Ethereum faces challenges from multiple directions every cycle. It not only has to compete with other smart contract platforms, but also needs to solve its own scalability issues and complex ecosystem.

Most of the reserve capital is stored in cold wallets, and I also use about 30% of the capital for DeFi yields and potential airdrops. For example, I earn yields on BTC through @SolvProtocol, while also pursuing airdrop opportunities. And my ETH is used for liquidity mining as $mETH on @0x Mantle.

Measure of success: At the end of each market cycle, I will measure the effectiveness of my investment by the growth scale of this investment bucket. The goal is clear: to continuously accumulate Bitcoin and prepare for the future.

Bucket 2: Cycle Conviction Holds

Examples: Virtuals, Hyperliquid, Solana, Sui, Pendle, etc.

Goal: Choose the assets you truly have confidence in. Many people lose money because of frequent trading and excessive rotation, and the focus of this part of the portfolio is long-term holding to avoid these problems.

These assets are your most conviction-driven choices, and you won't waver even if the price drops 25%. They are usually the core assets of the hottest narratives in each cycle.

Start positioning in the early stage of the cycle, hold these assets throughout the cycle, and gradually take profits as the price rises. Completely exit these positions before the bear market arrives, and then look for opportunities to re-enter during the bear market.

It's worth noting that adjusting strategies is normal. I originally listed ai16z as a long-term hold for this cycle, but recently I decided to liquidate it, even though it was supposed to be a long-term hold asset. The reason is simple: I don't want to deal with the unpredictable behavior of the founders anymore.

The key is: maintain strong conviction, but be flexible in responding to changes.

Bucket 3: Short-Term Trading

Goal: Short-term trading is your main source of high returns, but it also comes with greater volatility. Focusing on the hottest areas in the market is the key to success.

Currently, I don't think there will be a full-blown altcoin market where all assets rise simultaneously. The reason is that there are too many token types in the market, and liquidity is insufficient. This phenomenon is called "altcoin dispersion".

Therefore, it is particularly important to choose the hottest areas in the market. In this cycle, we have already seen the strong performance of memecoins and A.I. agents.

My approach is as follows:

• Identify 1-2 of the strongest performing areas;

• Find the most promising projects in these areas;

• Transfer profits to BTC or stablecoins to lock in gains.

How to identify the hot areas? Honestly, experienced investors can often sense the trends through the "atmosphere" of the market. However, there are now some tools that can help us quantify these trends.

For example, @_kaitoai is a paid tool, while @_dexuai is free and very efficient.

The data shows that A.I. agents have been performing well since November 11, 2024. You don't need to enter the market as soon as the trend emerges, just act decisively when the market signals are clear.

Someone may question: "These A.I. agents are just repackaged ChatGPT after all."

Maybe, maybe not.

But as long as the market is willing to bring me profits, I will seize the opportunity, rather than waste time on social media arguing for the sake of opposition.

Understanding the industry development can be imagined as surfing. I'm always looking for bigger waves, ready to catch the next opportunity.

For example, I have always believed that A.I. agents will fundamentally change DeFi. This is because the learning curve of DeFi is too steep, and the user experience (UX/UI) is also very unfriendly.

In the past few months, I have chosen to invest in the MODE network, as they have unique advantages in this area. Even before DeFAI (the combination of DeFi and AI) became a hot topic, they had already explored deeply in this direction.

However, my investment logic is loyal to the trend, not to a specific protocol - my goal is to find the "horse" that runs the fastest in each field.

When @DanieleSesta launched @HeyAnonai, I judged it to be a faster "horse", so I promptly adjusted my portfolio.

Why did I do this? Because in the last market cycle, I witnessed him successfully push two protocols to a market cap of $1 billion. He not only has an extraordinary ability to drive protocol value, but also exhibits an unyielding competitive spirit, and this focus makes him a formidable force to be reckoned with.

(It's worth noting that I don't intend to make any negative comments about the MODE network. I believe their development progress is ahead of most DeFAI projects, and they may perform even better in the future. But I hope that by sharing these stories, this article will not just stay at the theoretical level.)

In the cryptocurrency field, the key to making money is not what you think will go up, but what you judge others will think will go up. This is the essence of the "Keynesian Beauty Contest" - the collective expectations of the market are the key to determining prices.

From the chart below, it can be seen that DeFAI is gradually gaining market attention. Therefore, I believe this narrative still has great potential and is worth continuing to follow and explore.

In short-term trading, I usually focus on the following key points:

Maintain a high degree of attention to emerging fields. I have always been interested in new categories, which is why AI Agents are so appealing. Currently, there are countless new use cases for AI, and it is almost impossible to accurately assess their value. For example, the combination of AI Agents and the metaverse, or an AI tool specifically designed to find system vulnerabilities.

As of January 15, 2025, DeFAI (the combination of DeFi and AI) is a brand new field. If there are greater opportunities in the coming months, I will decisively adjust my strategy and seize that wave.

The importance of rapid iteration. In the crypto field, user attention is extremely short-lived, even likened to the "memory of a goldfish". Therefore, the team's update speed is crucial. The ability to iterate quickly is a key factor for a protocol to maintain market attention.

Stick to beliefs or chase trends? Simply put, trading can be divided into two styles:

The first is belief-based trading. You lay the groundwork in advance through in-depth research and build confidence in a project. Then you wait for other investors in the market to gradually discover this opportunity. This is also the strategy I used for the GAME project. I bought it very early and patiently held it for a few weeks until its price started to explode.

However, this approach also has risks. When the price is in a long-term sideways trend, you may doubt whether you are a far-sighted genius or a "fool" who misjudged the situation.

The second is to chase market momentum. When a project suddenly explodes, you quickly follow the trend and ride the wave. This approach is also effective. Both have their advantages, and the key is to find the strategy that suits you best. In this process, keeping a trading log is very helpful. Through long-term data accumulation, you can discover your own trading patterns and summarize the situations in which you are more likely to succeed.

Finally, you need to figure out which areas you are best at in your investments. I don't like to spend time in the "trench warfare" digging up projects with a market cap of less than $1 million, as this is not suitable for me.

Based on my experience, my most successful strategy is to find protocols with a market cap between $5 million and $25 million, and then hold them until the market cap exceeds $100 million. This is my way, but everyone's strengths are different. Perhaps you have more experience in those higher-risk, higher-return "Degen" (speculative) investments.

In trading, I follow these principles:

• I take profits early.

• I usually take profits when the gains reach around 3x.

• If a project performs exceptionally well, I will increase my investment in it.

The Fourth Bucket: Stablecoins

Stablecoins play an important role in the investment portfolio, with the following main uses:

• Reduce volatility: Stablecoins can help stabilize your investment portfolio. After all, if you invest entirely in high-risk tokens, a 40% drop in assets in one day is very difficult to bear. Stablecoins allow you to remain calm during market fluctuations and continue to participate in the game.

• Provide "ammunition" for buying the dips: Reviewing past bull markets, the market has never risen all the way up, and there will always be opportunities for corrections. Having stablecoins on hand allows you to seize these opportunities.

• Earn yields: Currently, the annualized yield rate (APY) of stablecoins is around 15-20%, which is also a considerable income. I personally recommend @0x fluid as a yield tool.

I will divide stablecoins into two categories:

• Permanent yields: This part is the stablecoins I have extracted from the market, and I plan to permanently exit the crypto market. I can use them for yield farming or directly convert them into fiat currency. This ensures that you will not lose all your profits in a single cycle.

• Temporary yields: This part is the funds I have temporarily stored after profiting from certain assets, waiting to find new investment opportunities. To facilitate management, you can use different stablecoins to distinguish them, such as storing permanent yields in USDC and temporary yields in USDT, or transferring all permanent yields to Fluid.

Diversification is key: In the last cycle, we all witnessed the unexpected events of some stablecoins, so it is very important to diversify and hold different types of stablecoins (such as USDC, USDT, sUSD, and even some asset-backed stablecoins). At the same time, distributing them across different yield platforms can also reduce risks.

Other Suggestions

"Put all your eggs in one basket, but watch that basket closely." This saying can be interpreted in various ways. I don't concentrate all my funds in a single protocol, but I am currently focusing my main efforts on the field of AI Agents.

Additionally, whenever I see someone talking about "buying the dips" while investing in more than 25 protocols, I can't help but laugh. You need to have a genuine belief in a certain direction. Otherwise, even if you hit on a project, the overall asset improvement will be negligible.

I believe holding 5-7 tokens is the optimal strategy. When I choose a token, I go all-in: actively participating in its Discord or Telegram groups, following the updates on the protocol, founders, and team, and listening to all relevant podcasts.

If you hold more than 15 tokens, it becomes difficult to thoroughly research each project. This may also indicate a lack of confidence in your own investments.

Don't ignore market trends. My greatest successes often come from decisively entering the market when token prices start to soar. Winners tend to keep winning. So how do you judge whether you are just a "bagholder"? It's actually quite simple.

Ask yourself, was your reason for buying due to fear of missing out (FOMO) or based on the recommendation of an opinion leader (KOL), or was it because you conducted in-depth research and established your own beliefs? Does the protocol have enough progress and catalysts to continue attracting market attention?

The market rotation speed is extremely fast. Nowadays, the first-mover advantage is not as strong as it used to be. For example, GOAT and Zerebro initially occupied market advantages, but eventually lost their leading positions. If a protocol has a first-mover advantage, you need to assess whether its advantage is "sticky" enough. Is its moat strong enough?

Take AIXBT as an example, it does have a first-mover advantage, but its market penetration and user mindshare are far ahead of other Alpha bots. I greatly appreciate their approach of developing most of the technology in-house, which makes it harder for competitors to replicate their achievements and seize the market.

Design your investment portfolio for a bear market. Clearly define your investment goals, then "work backwards" to achieve them. For example, you can choose 30% Bitcoin (BTC) and 70% Stablecoins. In any case, you must gradually lock in profits when the market is rising.

Reevaluate your investment portfolio. Your portfolio may be filled with ineffective assets, such as some "Moonbags" or tokens you have an emotional attachment to. Ask yourself, if you were to build an investment portfolio from scratch, what would it look like?

Remember, continuing to hold an asset is equivalent to buying it again every day.

"When to convert cryptocurrencies into fiat currency?" When you need to. I don't often convert cryptocurrencies into fiat currency, usually only when I need to pay taxes or when the proportion of crypto assets is too high compared to traditional finance (TradFi) assets.

My goal is to keep my crypto assets generating continuous returns. I try to maintain a low cost of living, and my company (The DeFi Edge) pays me a fixed monthly salary. Therefore, I am not in a hurry to interrupt the compounding growth of my assets.

My goal is to generate continuous returns from my crypto assets. I maintain a low cost of living and receive a monthly salary from my company (The DeFi Edge), trying not to interrupt the compounding growth process.