Next-Level Crypto Investing: Understanding the Meta and Making Directional Bets.
Unlocking the Meta
Participating in crypto markets during a bull run is similar to playing sports, where understanding and adapting to the “meta” or prevailing strategies is key.
In football, for instance, the game’s meta might shift from focusing on exploiting a weak offensive line and running the ball up the gut to prioritizing clock management or getting the ball within field goal range. Teams that can anticipate the various stages of the game and adapt their strategies have a higher win rate than their opponents.
When investing, your opponent is the rest of the market and in order to win your goal is to get in before everyone else in an effort to make outsized returns. Losers buy the tops and get dumped on.
In crypto investing, similar to sports, there’s also strategy or ‘meta’ for outperforming the markets. Understanding this meta is vital for consistent success to play this game at it’s highest level.
Layer 1 Ethereum Killers
At times, the prevailing strategy in the crypto market is clear and long-lasting. For example, in 2021, the trend was heavily focused on alternatives to Ethereum. These alternative smart-contract platforms, often referred to as “Ethereum killers,” were among the best investments of the year. The popularity of platforms like Solana, Luna, and Avalanche not only remained strong throughout the year but also extended to lesser-known Layer 1 alternatives.
Investors often asked, “Which Layer 1 platforms haven’t yet surged in comparison to the market average?” to tap into this trend, regardless of their in-depth knowledge about the platform’s functionality or quality.
This trend was fueled by Ethereum’s high transaction fees, which excluded many participants from active trading during the bull market. As market players are eager to make moves and seize opportunities, the high cost of using Ethereum drove them towards these alternatives. Until Ethereum’s fee structure changes, this strategic focus on alternative platforms is likely to continue.
Understanding Incentives
Understanding the metagame’s incentive structure is crucial, especially when comparing the experiences of retail investors in Solana and Avalanche.
Both Solana and Avalanche emerged as alternative smart contract platforms, labeled as Ethereum killers, and showed impressive performance. The initial investment thesis for DeFi on both platforms seemed similar: be early in a new ecosystem and reap the benefits if the platform succeeds.
However, the outcomes for retail investors in these two ecosystems were notably different. Solana’s ecosystem, for instance, was primarily beneficial to its founders and early VC backers. The tokenomics were structured such that retail investors entered at valuations assuming these projects were already successful. This high Fully Diluted Valuation (FDV) meant that most retail investors weren’t truly ‘early’; they were buying in at inflated prices, with much of the potential growth already priced in.
In contrast, Avalanche’s DeFi tokens started at more reasonable valuations. They were more community-oriented, meaning retail investors could genuinely be early and capture significant upside as the platform’s user base grew. This difference illustrates how the metagame in crypto isn’t just about being early in a temporal sense, but about entering at a valuation that offers room for substantial growth.
Investing in GameFi
The GameFi sector in the crypto market is a prime example of how understanding and acting on early trends is crucial for substantial gains. In early 2021, signs were already pointing towards GameFi as an upcoming trend. However, most retail investors didn’t catch onto this wave until later in the year, around summer 2021. By then, some of the significant opportunities had already started to diminish.
Investors who were tuned into the GameFi trend in late 2020 or early 2021 were positioned to make considerable profits. These early participants were able to enter at low valuations, capturing the exponential growth that followed. One standout example is Axie Infinity. Early investors in Axie Infinity, who recognized its potential before it became a mainstream success, saw massive returns as the project’s valuation ballooned to billions of dollars.
In contrast, those who joined the GameFi bandwagon later, especially after projects like Axie Infinity had already soared in valuation, found themselves buying at the peak. This strategy contradicts the desired approach in crypto investing where the aim is not to settle for modest 20% gains but to seek opportunities that can offer returns of 20x or more.
Axie Infinity’s success triggered a massive influx of capital into the GameFi sector. AXS (Axie Infinity’s token) became one of the best-performing assets of the year. This success story created a ripple effect, boosting the performance of other GameFi assets, even those without similar usage metrics or justifiable valuations. It was a classic case of a trend setting off a broader metagame, where GameFi became the new buzzword.
However, this phenomenon also led to inflated valuations and heightened investor FOMO (Fear Of Missing Out), often overshadowing the need for fundamental analysis. As a result, investors who jumped in late, lured by the trend but without understanding the underlying value or potential, often found themselves at a disadvantage, highlighting the importance of identifying and acting on trends early in the crypto investment game.
Digging Deep
Keeping an eye on venture capitalists (VCs) and evolving narratives in the crypto space can unlock significant investment opportunities, but timing is crucial. Being early, ideally before the information becomes widely known, is key to capitalizing on these chances. Once a prominent VC firm or well-known investor is publicly associated with a project, you’re already behind in the game.
To stay ahead, proactive strategies are essential. Monitoring Twitter accounts, on-chain wallets, and Discord groups are effective tactics. Utilizing Twitter’s search feature to track specific keywords related to influential entities like 3AC or FTX is a proactive approach. Diving deep into these information channels is necessary to truly be ahead of the curve. By the time mainstream investors on platforms like Facebook catch on, the opportunity for outsized gains typically diminishes.
Within the crypto world, there are various sub-metagames independent of the broader market narrative. For instance, there was a phase when listings on the FTX market were almost always bullish, as these listings brought significant attention to new assets during a bull market.
Similarly, savvy traders have been known to front-run Binance and Coinbase coin listings. They identify potential new listings through various means — insider information, API leaks, etc. — and buy these assets before they’re officially listed, selling them once they are listed for a profit.
Following certain VCs has its own set of meta strategies. This involves identifying and mimicking the investment patterns of these VCs, if everyone is pouring money into a narrative such as Layer 2 the idea isn’t to invest in the ones that are already over valued, but to go further down the risk curve and find the ones that are emerging and undvalued.
On-chain analysis and monitoring the activity of large-scale investors or ‘whale wallets’ have also emerged as meta strategies. These approaches involve analyzing transaction data on the blockchain to anticipate market movements.
Additionally, there’s a meta in participating in presales, where even less promising projects can attract funding by essentially guaranteeing profits to early backers. These projects often raise capital at low valuations, offer short vesting periods, select investors with large followings, and launch Initial DEX Offerings (IDOs) at significantly higher valuations, benefiting early backers.
In essence, being truly ‘early’ involves more than just joining a trend; it’s about in-depth research, understanding the nuances of the market, and staying informed through a variety of channels.
The Meta for the Next Bull Run
As we approach the cusp of the next crypto bull run, understanding and leveraging the current meta is more crucial than ever for those seeking outsized returns. This upcoming phase is likely to be shaped by new narratives and trends, making it an opportune time to apply the strategies previously outlined.
One emerging trend to watch is the potential comeback of meme coins. As the market balloons in value and retail investors come back looking for shiny objects coins like Doge and Pepe will eventually have all your normie friends thinking its going to make them rich. By this time you’ve already made 20x and will be laughing as you hit the sell button.
Layer 2 solutions for both Ethereum and Bitcoin are also poised to be at the forefront. With increasing focus on scalability and transaction efficiency, these technologies are expected to gain traction. Some projects to consider might be Metis, ZkSync, and STX.
The GameFi sector continues to be a promising area, especially with new gaming projects. While established GameFi projects from the last bull run have already seen significant growth, the key lies in identifying emerging gaming projects and chains specific to the space such as ImmutableX. These new entrants often offer more upside due to their lower initial valuations and the potential to capitalize on lessons learned by their predecessors.
In summary, the upcoming bull run presents a landscape rich with opportunities. The key is to stay informed, use tools like social media monitoring, on-chain analysis, and follow the movements of influential investors to identify emerging trends early. Focusing on sectors like meme coins, Layer 2 solutions, DePin projects, and new GameFi ventures can position you for significant, outsized returns as new narratives unfold in the crypto world.
