Crypto, Distilled
Compiled by: TechFlow
A Hypothesis: It is now the fourth quarter of 2024, and the price of Bitcoin has reached $80,000. The season of altcoins has finally arrived. You may rely on your intuition to try to grasp the peak of the market. But is there a better way?
“Failure to prepare is preparing to fail.”
The Trap of Price Predictions
Relying solely on price targets to manage investments is a common mistake. These targets are often subjective, driven by emotions or influenced by social media. Accurately predicting prices and timing their changes is extremely difficult.
The Tactical Advantage of Mindset
Every market downturn and rally makes it harder to maintain rational thinking. Your investment goals will constantly change, and you are more likely to focus only on information that supports your views while ignoring other important signals, leading to confirmation bias. At the same time, your ability to maintain discipline in the investment process will gradually weaken. It becomes a battle within yourself, and as you invest more money and take on more risk, this inner struggle becomes increasingly difficult.
The Power of Thematic Investing
When it comes to investments, what other strategies are there besides relying solely on price and emotions? There are many options: market sentiment, technical indicators, or on-chain analysis. However, strategies centered around a specific investment theme or logic tend to be the most reliable.
Creating Investment Themes
An investment theme is a reasoned analysis and argument for the potential of a project within a specific time frame. This theme can consist of multiple factors and does not necessarily depend solely on price. A good investment theme should be testable, allowing investors to manage their investments accurately and flexibly through testing and adjustments.
The Rationality of Thematic Investing
Thematic investing has several significant advantages:
– It can expand with your growing investment portfolio.
– It eliminates the influence of emotions and market sentiment.
– It provides clear validation and negation criteria.
– It eliminates the interference of short-term price fluctuations.
Example 1
Suppose you are optimistic about a specific Layer 1 blockchain project. Instead of targeting its past all-time high (ATH), you can focus on the following indicators:
– Total Value Locked (TVL)
– Trading volume
– Number of active wallets
Furthermore, you can focus on relative indicators such as market share or awareness.
Validation and Negation
Next, set validation criteria based on the key performance indicators (KPIs) you have chosen. This helps check whether the Layer 1 project is developing according to your predicted path or deviating from it. For example, you can use the growth of KPIs within 30 days as the basis for managing your investment theme.
Example 2
Consider a new project with AI agents. Instead of focusing on price, you can concentrate on the following key performance indicators (KPIs):
– Number of agent transactions
Set a benchmark based on your beliefs, such as reaching 1 million on-chain transactions.
Whitepapers and Minimum Viable Products (MVPs)
When exploring lesser-known and volatile cryptocurrencies, many projects only have a minimum viable product (MVP) or even no actual product. In this case, focus on the project’s roadmap milestones or milestones.
Navigating Events
Your investment theme may focus more on the execution of events rather than the growth of indicators. As they say, “Buy the rumor, sell the news.” Sometimes, it is wiser to exit immediately after a date is confirmed rather than waiting for the event to happen. Afterwards, set new indicators and form new investment themes.
Other Strategies:
If complex thematic investment strategies are not suitable for you, consider the following alternatives:
– Time-based strategies
– Fear and greed strategies
– Relative excess return strategies
Let’s delve into each strategy.
Time-Based Strategies:
Time-based strategies provide a simpler and more reliable approach. Consider selling a small portion of your investment portfolio every week or month. Adjust the timing and quantity of sales based on macro factors, liquidity, and your goals.
Fear and Greed Strategies:
Market sentiment fluctuates like ocean tides, pushing prices higher during times of greed. The key to fear and greed strategies is to profit from the rising tide. In this strategy, consider a weighted dollar-cost averaging exit strategy based on fear and greed indices.
Relative Excess Return Strategies:
Imagine the market as a race, with each cryptocurrency being a speeding car. The focus is on identifying which car will accelerate faster relative to the others. One way to profit is to sell at specific market capitalization (MC) rankings. For example, sell 10% at MC rank 50, 20% at rank 40, and so on.
Summary
The cryptocurrency market is highly speculative, and investor emotions, such as fear and greed, often influence decisions. In this case, establishing a risk management system independent of price fluctuations can give investors peace of mind without excessive concern about short-term market volatility.
Successful investors typically prioritize investment themes based on in-depth research and analysis rather than engaging in short-term speculation. This approach helps them make more rational and sustainable investment decisions.
Tags:
Cryptocurrency
Altcoins
Market
Bitcoin
Risk management
Source Link:
https://www.techflowpost.com/article/detail_18064.html
Note: The views expressed in this article are solely those of the author and do not constitute investment advice.
Original Article Link:
https://www.bitpush.news/articles/6802578
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