(10) Lessons in There

Some Lessons From My Time Trading Crypto

Intro

It’s been a long time since I’ve published any long-form writing. I could say life just got in the way - I was busy - and although there’s definitely truth to that, it’s been more a prolonged lack of focus and motivation to put pen to paper for longer than a few minutes.

I wanted to change that, so I figured I’d start with a broader, less technical article that I could write with little to no outside sources needed. This is that article. Over the coming months, I plan to publish more, including both technical and non-technical pieces. If that interests you, feel free to subscribe. If it doesn’t…well, I’ll still be posting.

These are ten lessons I’ve picked up through four years trading crypto, with about a year of that being full-time. These are mostly lessons related to discretionary crypto trading; for someone DCAing into Bitcoin, allocating 2% of their assets to crypto in their retirement account, or running MEV strategies, these aren’t too applicable. For those who do trade crypto discretionarily, I hope that my experience will be beneficial to you in some way.

Some quick notes before getting into it:

• I tried to rank these lessons in rough order of most to least important, but in the end I didn’t feel strongly about the ordering. Some important points are still lower down the list, mainly because they were related to other points lower down the list and I felt the article flowed better for readers this way.

• I’ve intentionally tried to avoid rambling, but there’s still some of that. I apologize in advance.

• If you’re a seasoned crypto market participant, you may have heard a fair amount of this before. The intended audience is slightly less experienced participants, but there still may be something here for you.

• Do not, by any means, take any of these lessons as rigid rules to trade by, or financial advice. I’m in absolutely no position to give financial advice, and there are far better traders out there who can give you far better fundamental advice on trading. This is just my little bit of experience.

With that out of the way, here we go.

1. Understand the current stage of the cycle, and skew trade timeframes/expectations accordingly.

A fairly obvious one, but probably the most important, especially in a market as cyclical as crypto. I spent the majority of 2022 not trading much, slowly came back in early 2023, and only really ramped back up in mid 2023 after realizing the now-higher odds of a spot BTC ETF were catalyzing a new trend.

Understanding the minute timing of shifts from bull to bear (and back again) requires you to be consistently in touch with the market, but most times it’s not especially tough. For instance, right now, nearly everyone would say we’re in a bull market. The way you handle this depends on your style and time horizon, but generally:

In a bull market:

• You could, and in my opinion should, have a decent chunk of your portfolio in spot holdings at all times. Even if you’re someone who mainly sticks to shorter-term futures trading, you can use your spot as margin. I will typically have 75-100% of my crypto-focused capital deployed as long as I believe we’re in a bull market. If and when to reduce that percentage is up to you (more on this later on).

• You can ride trends for longer, even if you didn’t catch it towards the bottom of the move; many use technical indicators like some variation of a higher-timeframe moving average to help identify trends.

• You can hold catalyst/news trades for longer; if you catch something early, and deem it legitimately impactful, you can afford to turn it into a trend trade rather than taking profit after X%.

• You can add to winners more easily, anticipating even more upside.

• You can take small positions in promising low/micro caps, or larger positions in larger caps with under the radar catalysts, and hold them until the market recognizes what you do. Since more people are hunting for these, there’s higher odds they’ll find what you found and follow you in. Though, you still have to be aware of opportunity cost.

  • For those with a large following, this is much easier, as you can directly feed information to a larger portion of market participants.

In a bear market:

• Upside is far more capped; catalysts-driven moves rarely sustain, so there’s more need to be “in and out”.

  • This also means you can generally hold shorts for longer, if you’re good at it. I’m not, so I usually just shoot for quicker shorts, or don’t trade at all. You could also opt for more pair trades.

• You can accumulate promising projects more slowly, as the chance price runs away (to the upside) is lower. 

• You have to be more careful of outright blowups (study FTX, LUNA, Celsius, and so on).

• You can afford to step away and focus on other things for longer periods of time.

2. Immerse yourself in the market.

Experience and repetition is what gives you the ability to instantly react to events and shifting narratives, using prior knowledge to digest information and quickly grasp 2nd+ order effects. 

For instance, a major news headline comes across your feed - maybe you see that analysts are (newly) predicting that Bitcoin ETFs from major firms like Blackrock and ARK will be accepted by some deadline. With experience, you can instantly answer and act on questions like:

• Was this anticipated news? If so, how has the market behaved up to this point, and what does that likely mean for post-news price action? 

• What beta/laggard trades are potentially in play?

  • There are very likely obvious answers, like STX and ORDI in this case.

  • But there also may be on-chain opportunities, either existing or new, like BRC20s, ordinal NFTs, or ETF-related memecoins. This headline may not be the best example for on-chain opportunities, but you can imagine others that would be.

  • Unless you are already aware of all of these opportunities, you won’t be able to catch them as fast. 

• Does this headline open up speculation into other, future, related headlines? 

  • For instance, what ETF is most likely next, if any? What deadlines are now in play, and what specific SEC filings would you expect to come before or at these deadlines?

• Is this negative for other coins, even if only tangentially related to the headline?

  • For instance, here, the headline may be bullish for ETH long-term (ETF legitimizing crypto more, ETH being the most likely candidate for a second ETF, etc.), but negative for ETH vs BTC short-to-mid-term. 

Other, more broad questions that you’ll be able to answer more easily if you’re immersed in the market:

• What is general market sentiment?

• What are the current metas, what stage (how early) are they at, and how likely are they to persist?

• Roughly, how are people positioned? What trades seem crowded?

• What trades seem uncrowded? Is there any recent news that is being overshadowed/unrecognized but seems impactful?

• Etc.

Additionally, with more experience, your “gut feel” will likely become much more accurate than that of a newer market participant. Crypto trades very differently than other markets and therefore, in my opinion at least, it offers better edge for experienced market participants as there are, even if simply due to market size and age, less of them. If you’re experienced with crypto and in a “flow state” with the market, take full advantage of it.

Note: I include this point so high up because it’s something I’ve identified as particularly important for me. If I’m mostly away from the market for a few days, I’ll typically avoid trading much until I’ve been back at least a couple days and feel more in tune with what’s going on. Some of this may be placebo, but it seems to help.

3. Understand and optimize your position on the information totem pole.

Crypto markets, especially crypto bull markets, are extremely attention and narrative driven, which naturally creates an environment where “social consensus” can almost alone drive price up quickly. Narratives and trends dominate, and “fundamentals” can actually be bearish in some cases given that many projects have valuations that, according to a DCF or similar model, would make no sense. Even if you’re coming from traditional finance, this shouldn’t be completely new (see GME, AMC, TSLA, etc.).

As attention moves to a coin and spreads, more and more people tend to buy, until eventually things get over their skis, lots of earlier buyers dump, and the whole trend reverses.

If you’re actively trading, this means that it’s to your advantage to identify spots where you can be higher on the “information totem pole”, and therefore earlier to trades, than others. Some examples:

• You see a large Twitter account posted about a coin earlier today, and it’s now up 10% on the day and 30% on the week. You’re at a low spot on the information totem pole. Yes, price can continue going up, especially if the coin fits nicely into the context of a larger ongoing trend/narrative, but there’s often a good chance you’re about to buy the top.

• DOGE is up massively leading into Elon Musk hosting SnL - a catalyst with a known date and time. If you’re only now buying, you’re at a low spot on the information totem pole (unless Elon were to do something like directly tell viewers to buy DOGE on SnL, but even then early buyers may still dump on you, and how much upside is really left?).

  • Good article by Huma on trading expected vs unexpected events.

• You’re monitoring new contract deployments, and you discover a major protocol deploying a contract that allows token holders to stake their tokens to farm an airdrop, and they haven’t announced it yet. It could be a false positive, but the risk/reward is high here, and you’re likely high on the information totem pole.

• You discover an API leak or scraping method that allows you to get notified of new listings on a major exchange faster than others. You’re high on the information totem pole, especially because you know others will care about and trade on this information soon after.

These examples seem clear-cut, but only because hindsight is 20/20. In the moment, FOMO and overall uncertainty can make it harder to position correctly, but having experience and taking a second to consider where you are on the information totem pole can help you avoid a lot of pain.

For some people, moving up the information totem pole can be a very social thing (connect with more crypto-market-focused people, gaining access to more information sooner), while for others it may be more technical (in-depth research on new projects, scraping websites for information/headlines, MEV/botting on newer and less competitive chains, etc.). Some people can do both. Whatever plays to your strengths is probably your best option.

4. Keep a fresh list of ideas and future potential catalysts, and set up monitoring where possible.

If your goal is to be higher on the information totem pole, it helps to be prepared for and aware of coming events. You could keep a list of upcoming catalysts (expected announcements that could move markets, coins breaking out of long ranges, new major token launches, conference dates, etc.), or a list of potential catalysts with unknown dates (large token burns, announcements of airdrops for hyped projects, new major exchange listings, etc.). If applicable, you can also set up automated monitoring and trade execution for them.

Working with a group can be a huge advantage here. You may be less technical but very well connected or capable of doing research to find ideas, or you may be more technical and capable of implementing monitoring/trading systems to capitalize on those ideas. 

That said, you’re better off keeping the group small and trustworthy, as your goal here is to beat the majority of the market to trades based off of your aggregated ideas.

I’ll also note that I find journaling helpful for keeping your mind clear and centered on the most relevant parts of the market (both currently, and where you expect relevance in the future). It also helps to be able to look back and identify where and why you were wrong, and to identify times where you may have been right but did not position accordingly. I do longer-form journaling every Sunday.

5. During intra-bull-cycle moves, increase risk towards the start of the move & reduce over time.

With the type of experience mentioned in point #2, it’s easier to grasp or ”feel” regime changes. As you sense that the market may be entering into a new, major upward move, it’s better to crank up size/risk early, rather than waiting too long for confirmation. 

Why? Because it (a) allows for larger upside if you are correct - even if you don’t choose the strongest coins at first, and (b) allows for lower downside if you’re wrong, as you’re closer to invalidation points and can cut these trades faster if needed. Obviously, higher risk is higher risk no matter how you frame it, but the goal here is maximizing risk-return, not minimizing downside (assuming we’re in a larger bull market trend).

Many do the opposite, waiting for better confirmation and/or FOMO to size up.

A good, very recent example can be found in BTC. BTC spent Dec 3rd, 2023 to Feb 7th, 2024 trading largely inside the $41.3-44.5k range. It broke upwards a couple times, around Jan 2nd (with very high funding) and around Jan 10th (the ETF approval). It also broke lower once, on the back of GBTC outflows and the ETF “sell the news” narrative. Aside from those short periods, it stayed in this range for 2+ months.

After such a long ranging period, I viewed BTC breaking the range to the upside (in a “healthier” fashion: not ETF approval driven, with healthier futures positioning, and largely BTC led as BTC neared yearly highs with most alts well below) as having the potential start to another big leg upwards. This made it an easy time to significantly increase long exposure on BTC and strong alts, with well-defined risk, and it paid off.

Note: Also, on a larger scale, crypto’s total market cap has grown larger each cycle. There have historically been diminishing returns each cycle, at least on large-caps, and if regulations grow tighter over time, many opportunities that are here now may not be present in the future. For these reasons, you need to take full advantage of the opportunities presented to you in this market. 

6. Generally, what is strong tends to remain strong. Winners win and losers lose, so press on the winners.

This is a well-known one, so for many readers I’m probably preaching to the choir, but I still feel it’s worth a mention. Strong coins tend to remain strong. For this reason, especially in bull markets, it’s often better cut your losers and add to your winners.

Being able to identify metas somewhat early is key to this; the AI craze (and recent resurgence on reports that Sam Altman is seeking to raise $7 trillion for a chip venture, as well as Open AI’s new Sora model), the 2023 crypto gambling surge, and the 2021 metaverse theme come to mind as prime examples. 

Attention and opportunity cost play big roles here:

• Strong coins are already getting the attention of the market; they’re more likely to gain even more attention (reflexivity), making it easier for them to continue outperforming. 

• There is opportunity cost to buying something that the market does not currently care about, and waiting until it does care. 

  • Of course, if you have reason to believe that the market will care soon enough, then you’ve deemed the opportunity cost worthwhile. 

  • This is why breakout trading can work so well in early-mid bull markets: you see the market is now giving the coin attention, and you may judge that there’s still significant upside beyond the breakout.

  • I’ll note that the extremely high upside potential of micro caps often makes it worth holding them for longer periods of no large moves, but it’s typically better to size lower to start. You retain capital for other opportunities, and can add to the micro cap if the market begins to consider it a winner.

There are also some mental components to this that make it hard for many in practice:

• It’s harder to buy something that has “already pumped”. It’s easier to ignore it, hope it goes down, or try to buy “beta” that often winds up still underperforming it.

• For many, it’s hard to re-buy something you determined a loser, only to (soon after) have the market begin to treat it as a winner. 

In 2021, these two mental blockers caused me to miss out on some huge winners (OHM, LUNA pre-crash, + others). Mostly getting over these has improved my trading tremendously.

Some examples of identifying winners early include:

• Recently, new launches have done very well, with TIA more or less starting the trend with its late 2023 launch and subsequent ~10x run. There was significant upside in researching valuations (market cap and FDV at different prices at launch) relative to comparable projects, as it often allowed you to buy with significant size into often good liquidity with relatively high EV. Examples include DYM, MAVIA, ZETA, and ALT.

• Friendtech. Given that the market, at this point, was relatively starved of narratives, the fact that nearly everyone was spending significant time on this meant that the upside of buying shares or botting new account launches was likely to be high, at least for a little while (it lasted longer than I expected).

• PEPE. Another one where the market was relatively starved of narratives and strong alts. As derivatives of PEPE began to launch (people searching for lower-cost beta), this was another sign it could do well. More recently, PANDORA fit this same type of story.

  • In hindsight, this is easy to say, but I mostly missed both of those coins. Identifying the upside left in coins like these can be really challenging in the moment, at least for me.

• TAO. Regardless of your views on crypto + AI or the legitimacy of this project, TAO began cementing itself as the top AI coin in late 2023/early 2024. If you assumed the broader AI revolution would continue (why wouldn’t you?), this was a great bet, and you could have always rotated to a different coin if it looked poised to compete for the lead (so far, nothing else has really challenged).

7. With fast-moving coins in bull markets, put some exposure on, THEN do research.

Say you hear about some project - maybe someone you trust DM’d it to you or you just saw it in a thread on Twitter - and you see its token is up 20% on the day. It’s interesting, so you decide you’ll do some research on it in the evening, or tomorrow when you’ll have more time. Finally, you do your due diligence, determining that the project is worth buying…and now the token is up an additional 30%. Sound familiar? 

After repeatedly having this happen to me in 2021, I switched my approach. If the initial exposure to the project is promising, I’ll buy a smaller starter position before doing a single second of research. Then, after doing research, I’ll either cut the position, or I’ll add to it. You could also use price as your invalidation for cutting if you don’t necessarily love what you found while researching, but still believe that other market participants will drive the price up in the near future.

^ Stanley Druckenmiller referring to this practice as “invest then investigate”

Obviously, buying a token before you know anything about it is risky, but if the market is trending upwards and the tradeoff is missing a good portion of a move, I deem this practice worthwhile. Whether or not to take the starter position is, going back to point #2, more of an experience/intuition call than anything else. 

8. Don’t overthink strength and/or other market participants.

^ Don’t be the guy in the middle

A well-documented one: don’t overthink too much. This manifests itself in many different ways:

• Low unit bias. People, especially those newer to crypto, have a tendency to buy lower-priced tokens. “What if this goes to a dollar?” they may think to themselves, with no regard for the fact that, at $1, the coin’s market cap would be larger than Apple’s. This is more well-known now, but it can still be applicable in some cases (NFTs on Bitcoin come to mind; a price of 0.05 seems low, even though it’s actually ~$2,500).

• Over-analyzing fundamentals. Example? A project with a token may not even have a product live yet, but if they’re working on it and it fits very well into a hot narrative, it may still pump hard.

  • Crypto + AI arguably fits here right now. No, or at least almost no, crypto + AI product has any semblance of product-market fit at scale - a fair share is even complete vaporware - but that hasn’t stopped them from outperforming while AI dominates traditional tech headlines. In fact, in the case of AI tokens, I often refrain from doing any research at all, and just trade the chart.

• Memecoins. If a memecoin, in the right market environment, reaches some sort of escape velocity, it can go much higher than almost anyone would expect. People like memes, and no utility can sometimes be the best utility. In crypto, “Why would I buy something with no fundamental value?” often equals mid-curving and missed opportunities (memecoins have value: memetic value).

• New tokens. Just because something is unproven doesn’t mean it won’t outperform before proven in any way. There’s no bag holders who have been waiting months to sell, there’s often low float, the team has newfound motivation and incentives to help the token go up, etc.

• Claiming that the valuation of some coin is WAY too high. In bull markets, valuations can often be and stay irrational. If you truly believe something is overvalued, you’re probably better making a relative value trade (longing or pair trading a good competitor, if any, that trades at a lower valuation) or just looking elsewhere.

9. Manage your risk according to your trading style.

Extremely obvious one, but so many people I talk with throw risk management completely out the window when they start making money in a bull market. I’m not entirely sure what to say on this point, as managing your risk, in practice, really does vary massively from person to person. 

Instead of going on some philosophical rant about why you should manage risk, I’ll just offer some practices that have helped me specifically.

• Don’t trade on tilt; if you’re having a bad day or week, just stop. Take some time off if you can’t avoid trading while at your desk (or maybe get some outside help, you may have a problem).

• Don’t compare yourself to others. Someone made a bunch of money on a token you’re not in? Good for them - unless you legitimately think there’s still plenty of upside, don’t force a trade. Look for other opportunities.

• Even in a raging bull market, try to keep some sort of a cash reserve for new opportunities.

• Take some % of profits off the table, meaning completely out of crypto.

  • Related: Don’t go “all in” on crypto - keep some money outside of it. This one will especially differ per-person.

• Don’t get greedy. You can always take partial profits, and it’s better to cut a loss than hope it comes back to your entry (you can always rebuy subsequent strength if it makes sense).

• You could set a “goal number” where you start will start taking larger chunks of money out of crypto. You don’t want to roundtrip large gains during a bull market, so having some framework for avoiding that (other than praying to sell the pico-top) is smart.

  • I’ve developed a framework for this by now, but were it not for a trader I highly respected calling for blood in December 2021, I more than likely would have round-tripped much more of my 2021 gains. Relying on others to tell you when it’s over is not a great way to avoid round-tripping, especially because most people are most euphoric and greedy towards the top.

10. Be conscious of your valuable and limited time.

There’s only so many hours in each day, and there’s only so many of those hours that you can devote to the market. Some people are working full-time while trying to trade on the side. Some are dealing with personal or family issues. Some are on vacation and trying to enjoy their time away. Some, believe it or not, have hobbies other than crypto that they enjoy spending time on.

However, of the hours that you can devote to crypto, you should be maximizing their productivity. At the end of the day, if you’re an investor/trader, your scoreboard is PnL. It’s not how much time you spent or how “right” you were…it’s just the final PnL. Therefore, your focus should be dedicated to the things that can maximize your returns over your time horizon.

A good example: The top few wallets in the BananaGun (a Telegram-based trading bot) trading competition were each up 6 figures in a competition that lasted under a month. I track some of them and, unsurprisingly, they spent what seemed like every waking hour trading on-chain. They didn’t spend it trading perps, or developing a new automated strategy for a week, or on anything else. They took advantage of the skill/edge they had in a market that was ripe it.

For those like myself who enjoy (relatively time-consuming) things like deep diving into niche corners of the market, building automated strategies and scrapers, or sifting through wallets on block explorers, you should know when to pause. There’s a time and place for these practices, and in the midst of a parabolic move in the middle of a bull market is not that time. If the market is hot, then as a trader you should focus on the market, utilizing the tools and advantages you’ve accumulated so far. There will always be calmer times in the future to come back to building and researching.

Conclusion

These are a non-exhaustive list of lessons I’ve learned during my time in crypto. Non-exhaustive both in that there are many more I’ve learned, but also in that I’m still learning new ones every day, often the hard way. Hopefully, some of these can help you learn the not-hard way, before making the same mistakes I did.

Again, I plan on publishing more in the coming months, so subscribe if you enjoyed this article. If you have any feedback or future article ideas, feel free to DM me on Twitter @bh359. Cheers.