On Alpha and Edges in Crypto
Hey, friends!
Today I have my friend Tyrogue with a guest post.
Tyrogue is a sharp trader I got to know through a Telegram group, and he is sharing extremely well-articulated thesisis on a regular basis.
In this post he is talking about getting an edge and alpha in crypto, something that should be very relevant for people trading crypto both onchain and on CEX.
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On Alpha and Edges in Crypto
Read this post and you'll understand:
The difference between alpha and edge
What alpha is, and how to take advantage of it
How to develop an edge, and how to build your intuition in crypto
When to buy the dip
And when to short the rip (haram)
Alpha and Edge are two words that get thrown around CT constantly...
But what do they actually mean?
Alpha, simply put, is... information you can exploit to make money with. There are different kinds of alpha, and different edges needed to exploit it for $$.
Edge is being able to extract yield from the market, due to an understanding or skillset that the participant has, that others don't. Edge and Alpha are different sides of the same coin.
Alpha = actionable info
Edge = being able to exploit the info
There's many variants of this, so let's break it down.
3 basic types of "alpha"
1) Time-sensitive alpha
This would be news trades and plays, and being able to take risky positions with a good probability of success. Examples of this would be shorting Cronje leaving crypto in 2022, or longing the recent $FTT rip
2) "Mass psychology-based" alpha
Be it charts/fractals, being familiar with TA, or knowing certain fractals that occur with airdrops is a good example of this. Buying hacks/bankruptcies often prove profitable despite fundamentals - $SOL, $FTT, $CEL, $SRM are all great examples.
Heck, $LUNC provided a great return in the carnage of the last bear. This can also be extended to GCR's killer bottom buy of $10 SOL and $1,000 ETH, at the 15.7k BTC bottom. Mass psychology was screaming contagion and worse to come - but it still hasn't arrived (yet)
3) Intuition
Being able to know, feel, and forecast what will happen, with precise accuracy. This is the hardest one to develop, and many do not have it. I have seen it in multiple CT folks, be it @outpxce and his ability to charge it to the game... @0xJezza and what on-chain plays to accumulate, sell, and enter with very little risk of losing... @smileycapital forecasting prices, pumps, and market trends ahead of the crowd... @ZoomerOracle spotting the new shiny coins that outperform the market (TIA, ZETA, BEAM)... And of course, @GCRClassic's killer takes and forecasts on the market. (Too bad you fucks made him leave last year)
Analyzing GCR's market takes, you can begin to understand how his intuition comes about: - He combines Schelling points with unit bias as well as market and human psychology on a genius level - He has instinct built from a background in political forecasting - Most importantly... It's easy for him.
If you have the right intuition, making money should be easy. The best plays can be the easiest ones, if you've been here long enough. Be it buying $FTT the moment the market started pumping in 2023... Buying $APT upon seeing $SOL starting to recover... $BEAM rebrand, nodemonke listings, $PANDORA when it started having escape velocity... Being able to change strong convictions on a dime to win is the way to go. Let's get into examples
So far, it's been a lot of words and not as many charts and numbers.
Let's change that.
Example #1: Buying any hacks or exploits when they're not a death blow to a protocol - $GMX A whale got exploited on GMX for $4m, it's bullish selling.
Example #2: Shorting/longing news based on the market trend, and using that to profit. Needless to say, the easiest trades of last year was the Blackrock ETF announcement, and noticing how the market reacted to the intern's fake tweet (bless his soul)
Longing the INJ ecosystem fund announcement till new ATH on spot, longing the XRP SEC win, longing ONDO on listing with Fink's bullishness, the list goes on.
Example #3:
Waiting for team catalysts/scam pumps (not all projects are scams but you get me). If you can find projects that won't go to zero, and simply buy spot when volume dies off and the selling slows... When market conditions are right, teams capitalize with announcements and catalysts to spur positive price action.
Study AVAX before they announced that culture boosting grant, study Pengus and how they slow grinded to become the top pfp after merch and toy catalysts, study the rebrand of $MC to $BEAM, oh so many examples of this.
However, the most important principle underlying all of this is - be flexible and adapt to whatever the market provides. This means playing whatever sector of the market is taking off currently. NFTs, Leverage, Onchain/DeFi - you simply rotate into where the money is. Know how to long/short stuff on CEX. Have funds there to be ready to capitalize. Have an ETH or a few bands on every half-decent chain/L2 to catch a new runner when it emerges. Have a close friend that can ape stuff for you when you're not by a computer. Etc. ^^ You should write that last paragraph down. (Also @Newslybot is great for having a good news terminal to keep abreast of market news).
To sum this post up so far:
- Alpha is info that makes you money
- Edge is your ability to exploit that info, to make money with it
- Alpha can be found in multiple ways, and everyone has a different edge in this marketplace. Find yours, hammer it in, win.
- What works will change from season to season... ...So the way to win is to always adapt, and to never forget to turn off the midcurve brain, and be either a dumb ape or a gigabrain. There is no second-best market.
Some quick thoughts on cycles, phases, conviction, and profiteering from the market
Most people in crypto now have winning future 6-7 figure bags in various alts and majors that they will sell too early because they lack cyclical conviction.
If you don't have the conviction that another blow-off top in some form is coming (could end in a distro, double top, single top etc), you will sell far too early.
In order to capture the insane multiples only found in crypto, you have to be able to:
- Know when to go risk on
- Know when to take some off the table to rebuy at a lower price
- Know when to diamond hand and expect HUGE volatility on the way up
- And know when to run for the hills
Imagine buying $ETH at single digits, and selling the DAO hack because you didn't have conviction in ETH then.
Or the Vitalik death fake news. Big RIP.
Imagine buying AVAX at low double digits, and selling before the 2nd FTX/3AC double top in 2021. Or selling LUNA at single digits after the first blowoff top, before it ran to over $100 at peak.
Heck, I know a dude who sold 20 bored apes for just a few ETH in 2021 right before NFT season really kicked off.
The easiest way to truly get rekt in this space is to borrow your conviction from someone else... And to not understand what the hell you're doing in this place.
When you buy a coin, you should know: - What the pampamental potential is, i.e. how far it can run, its tokenomics, FDV, what dynamics it has to pump hard - Is the tech actually good?
Good tech can be a good meme, can be a new L1 tech, can be new consensus, but try to educate yourself on it after aping so you know what you're holding
- How early/late are you to the narrative? If you're early, you can full risk on, get a heavy spot/levered bag and just monitor the position. If it's late, you may just have to scalp dips. If it's late early, you may just be able to ape in before the masses arrive, but exit far sooner than you'd think
You should also know the coin's competitors, and the holders of the coin.
Are they: - Cultists that will never sell due to true belief? See $TAO, $KAS for examples of this - Memecoin traders who will sell off into -70% candles to ape another coin? See recent memecoin selloffs for examples - Institutions/VCs who are waiting for unlocks to dump on poor retail, or who will put the pump on before that happens? i.e. $TIA , $SOL previous cycle - Retail that will continue to bid and bid until they don't have any life savings left?
Tokenomics, holders, narrative - study the combination of these 3 to understand whether you can make money off a coin that you've just stumbled upon. What market cap is the coin? What comparisons does it have to other coins? What is the likely ceiling cap of the coin?
Some coins will never make it above 100m. Others are destined for billions. Others are destined to be 10m, despite having a great PMF because people just won't bid on the narrative. You must be both realistic about the multiples your coin can give, and also, bulltard enough to see if it can outperform. Tricky balance.
Then, what is the liquidity and buying process of the coin? SOL seemed dead when RLB was at fractions of a cent, but you could've captured a sweet 20-50x on the coin as long as you saw the revenue and users of the product, and just diamond-handed a bag through the FUD and volatility till now. The harder it is to buy a coin, often, the earlier you are. $TAO was at $10-25 OTC, and the buying process for it was complicated enough to only get true believers in at the time. Now, it's trading multiples from that and early buyers were rewarded.
In a bull market, there will be countless ways to make filthy, gains, and countless ways to lose it all on the way down as we descend into a filthy bear. Your job is to ride the bull, spot when almost everyone has bought, and start exiting quickly before the liquidity vanishes, the chart turns red and people turn on each other like hungry fiends desperate for their money.
Stop thinking about making it in the next market move. Start thinking how you'll make it in the overall cycle. There will be so many coins to play for, so many NFTs, and new innovations that will emerge that all you need to do is listen to the market and pay close attention. Even now, the next unicorns in crypto are being built, and when their tokens launch, you must be ready. But you must hone in on your understanding of yourself, and how you perceive the market, to be able to take the right actions to win. Some will make millions with leverage, others with onchain bags, others with just the right spot coins, the right NFT mint, etc. Figure out which path you can take, but also know how to exploit the other paths in the market to win.
If history repeats, we have entered about 18 months of a bull market right now. But it will be difficult. You'll want to sell early. Or, you'll be convinced at the top that this time, it is different, and we finally created the future of finance. You'll want to exit before the party ends, and you won't squeeze out enough juice from the orange before it's over.
No cycle is ever truly that different. The driving factors of the bubble may be different this time with inflation, dystopia and modernity, but the behavior is the same. A crowd of people are convinced that a new asset, stock or commodity is the next big thing, credit expansion allows prices to climb ever higher, until the bubble pops, and the market transfers money from the hands of the many into the hands of the few. And just like there will be another bull cycle, there will be another bear.
There will be a time to call everything vaporware once more, but at the current moment - it's all shiny new objects to the crypto natives left in the trenches here now.
You must be ready, and you must believe.
That’s it for today!
Follow Tyrogue here to get his latest Twitter threads.
Happy trading and good luck with buying all the dips in 2024!
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Excellent read!