Prepare for the imitation season: Spend time identifying the right projects and gradually take profits using a "dollar-cost averaging" approach

Author: THE DEFI INVESTOR

Compiled by: Shenchao TechFlow

Many people have recently lost confidence in the continuation of this bull market cycle.

Given that many top altcoins have fallen over 60% in the past few months, their disappointment is understandable. Surviving in such a market downturn is indeed not easy.

However, there are many signs that this cycle is not over yet.

Of course, nothing is guaranteed in financial markets. But I do believe that the risk/reward ratio for being bullish at this time is very attractive.

In this issue, I will explain why I expect an altcoin season later this year and the strategies I am currently employing to maximize my profits in the next rapid rise phase.

Let’s dive deeper.

There are many reasons, but to put it simply, the main reasons are as follows:

• The stock market is at historical highs

• The Federal Reserve is expected to cut interest rates later this year

• The overall supply of stablecoins is continuously increasing

• Major U.S. presidential candidates now support cryptocurrencies

• Traditional financial institutions (like BlackRock) are starting to pay attention to cryptocurrencies

• Approximately 16 billion dollars will be distributed to FTX creditors in the coming months—many of whom may reinvest this money into the market

The third quarter has historically been the worst-performing quarter for cryptocurrencies, which may explain the recent downturn.

Source: CoinGlass

However, I am very optimistic about the fourth quarter.

With the U.S. elections, the Federal Reserve's interest rate cuts, and the FTX cash redemption plan taking place in the fourth quarter, it’s hard for me to imagine a scenario where BTC has already peaked.

So far, BTC's dominance has been rising in this cycle. Altcoin seasons typically begin when this trend reverses, and I believe this could happen in the fourth quarter.

Betting on the Right Projects

Now that I have shared my bullish outlook, I also want to discuss my strategy for identifying tokens that may perform well in the next market phase.

A good way to become a better investor is to study the past of the market.

For example, I believe the best way to learn how to catch 10x potential coins is to first analyze the commonalities of those tokens that have already achieved 10x growth.

In the last bull market, these 5 coins returned over 100x:

• SOL - The coin of Solana, the most popular non-EVM blockchain.

• LUNA - The coin of Terra Luna, whose algorithmic stablecoin experiment ultimately ended in failure.

• MATIC - The coin of Polygon, one of the most popular Ethereum L2 projects.

• SPELL - The token of Abracadabra.money, a DeFi lending platform that enabled very high-yield degen strategies.

• FTM - The coin of Fantom, one of the fastest-growing blockchains during the 2021 frenzy phase.

I believe their tremendous success can be attributed to several key factors:

• Leadership - Do Kwon is the leader of LUNA. Andre Cronje is the leader of FTM. Daniele Sesta is the leader of SPELL.

These three individuals are charismatic and have successfully built a strong community around their projects. A founder with strong media influence and a great personality can significantly boost the success of their project.

Ordinary investors prefer to invest in projects with strong leadership.

Most projects with leaders perform poorly in the long term, but by betting on these projects before the bull market ends, you can make a lot of money.

• Innovative Products

No need for new Uniswap forks.

Your best chance is to bet on innovative projects that continuously push boundaries rather than just replicate 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 10 times better than its competitors and releases it faster.

A good example that comes to mind is ++Pendle++.

Pendle is the first yield trading protocol that enables trading of airdrop points, benefiting immensely from being the first to achieve this.

Moreover, its team continuously announces integrations with popular protocols, helping Pendle maintain its position as the leading yield trading protocol.

• Partnerships with web2 and/or web3 Giants

Ordinary investors love 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 so.

Partnership announcements can trigger significant token price increases during bull markets.

• Reasonable Token Utility and Low Token Supply

SOL, MATIC, FTM, and LUNA are used to pay gas fees and secure blockchain networks, while SPELL has a revenue-sharing model.

Simple governance tokens like UNI also performed well in the first half of the 2021 bull market.

However, I believe that most of the outperformers in this cycle will not just be simple governance tokens but will also have some additional utility.

Some potential token use case examples:

• Fee discounts

• Revenue sharing

• Payment of network fees

• Buyback and burn mechanisms

• Rewards for protocol users

• Access to exclusive products (e.g., access to web3 launch platforms)

Memecoins are clearly an exception, as they can perform very well even without any utility. But aside from memecoins, I generally avoid buying coins without utility.

Unlocking plans are also important. You don’t want to buy a token that will have a circulating supply increase of over 300% in the next 365 days.

Significant token unlocks can significantly impact token prices, and there have been many this year. You can use tools like Token Unlocks to monitor upcoming unlocks and the unlocking plans of over 100 tokens.

Having a large proportion of the total token supply already in circulation is a good thing.

• Upcoming Major Catalysts

Some examples of catalysts that could positively impact token prices:

• A major protocol upgrade

• Tokenomics upgrades

• Listing on major CEXs

• Launch of new products

• Fundraising announcements

• Major partnership announcements

Catalysts can significantly enhance token price performance, which is why I typically only invest in projects that have significant catalysts in the near future.

I always ask myself one 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 truly make you wealthy.

My plan for this cycle is to hold up to 10 coins that meet the above criteria. If you know what you’re doing, over-diversification is not worth it.

Airdrops: Are They Still Worth It?

Many people have recently been disappointed with some hyped airdrops.

LayerZero is a recent example. As airdrop farming has become increasingly popular over the past few years, many airdrop opportunities are now highly diluted, especially due to the emergence of farming bots.

As a result, most airdrops today have linear distributions and are no longer based on ranking systems (like Jito) to avoid rewarding industrial farmers.

Is linear distribution of airdrops a bad thing?

The problem is that whales are the ones who benefit the most from linear distribution airdrops, which is not good for low-capital users.

Turning $1,000 into $50,000 through airdrop farming is now nearly impossible. But I believe that by farming the right airdrops, you can still make some good money.

The main criteria I look for in no-token protocols are as follows:

• Strong community - The more active the project community is on X, the higher the potential valuation of its token.

• Funded by venture capital - The more funding the team raises, the higher the potential valuation of the protocol token at launch.

• Lower TVL / total funds raised ratio compared to other no-token projects - The lower the ratio, the better, as a high ratio may indicate that an airdrop opportunity is over-farmed.

• Polymarket is a good example of a protocol with an excellent TVL / total funds raised ratio.

Ideally, airdrops should be farmed from protocols that people genuinely find useful, rather than those used solely for the purpose of airdrops.

What About Taking Profits?

Every bull market creates a new generation of millionaires.

However, data shows that over 90% of people ultimately give most of their profits back to the market due to greed. That’s why you need a realistic exit plan.

For long-term holdings, I primarily take profits based on fundamental trigger points.

Whenever I start to see multiple signals that indicated a top in previous cycles, I begin to sell using a reverse dollar-cost averaging strategy.

The reverse dollar-cost averaging strategy is the opposite of dollar-cost averaging—it involves selling the same amount of tokens at regular time intervals.

Some good top signals I watch for:

• Jim Cramer constantly promoting cryptocurrencies

• Coinbase becoming the number one app in the App Store

• Your friends and family starting to talk about cryptocurrencies

• Several celebrities launching their own coins

• People on your X timeline showing off Rolexes and expensive cars

• Useless projects raising tens of millions of dollars

• Financial YouTubers starting to frequently talk about cryptocurrencies

• Google search traffic for "crypto" skyrocketing and hitting new highs

• Ponzi farms offering five-digit APY rewards attracting billions in TVL

The only top signal we’ve seen in this cycle is celebrities launching memecoins. This makes me feel like we are still in the early stages.

Taking profits when BTC or your altcoins reach certain price levels can also be an effective strategy. But in my opinion, identifying price levels that are truly suitable for selling is much more difficult.

Conclusion

I always try to stay realistic, so here are my thoughts:

Succeeding in this bull market may be harder than in previous cycles. One reason is the explosion in the number of cryptocurrency tokens.

Source: Miles Deutscher

Finding good investments is becoming increasingly complex.

Additionally, the price discovery of many new high FDV coins is now happening in the private VC market. Due to the overvaluation of most new coins at launch, ordinary investors find it hard to find tokens that can 20x or 50x.

This doesn’t mean there are no longer opportunities in cryptocurrencies.

But you have to put in more effort and time to identify them. If you are willing to do so, it’s very likely that you won’t regret it.