In this episode of Crypto Market Wizards, which took place on December 13, 2023, Taiki and Ansem discuss current market conditions, bull markets, layer-1 vs app-tokens, trading mistakes, and more. Read our notes below to learn more.
Background
- Taiki Maeda (Host) – Founder of HFA Research
- Ansem (Guest) – Trader
Ansem’s Market Thoughts
- Ansem says that he has been trading crypto since 2017. He first learned about crypto while studying computer science at Georgia Tech in 2016.
- He adds that after graduating, they started trading crypto while working as a software engineer. Since mid-2021, he has been full-time trading crypto.
- Ansem says that he expected Q4 to be bearish but was surprised by the strong rally in October. Many altcoins have seen significant gains and are breaking out of accumulation ranges.
- He adds that $BTC is consolidating around $40K, and there may be more consolidation in Q1. The recent rally is likely due to anticipation of ETF approval in January.
The Upcoming Bull Market
- Ansem says that the layer-1 trade is expected to continue working because some features are still not available on Ethereum mainnet. Solana offers higher throughput and lower transaction fees compared to Ethereum, making it attractive for developers.
- He adds that as more applications gain traction in DeFi and other areas, different layer-1 blockchains will compete based on performance and user adoption. Other layer-1 chains like Celo are also showing potential with technical innovations.
Layer-1 vs App Tokens
- Ansen finds the application layer to be the most interesting part of this cycle. He is excited to see what other applications can be built besides DeFi lending and borrowing.
- He mentions NFTs as one of the significant innovations from the previous cycle. He anticipates exploring social applications, decentralized physical infrastructure apps, and AI sectors during this cycle.
- Ansen says that with improved technical infrastructure, there is potential for building a wide range of innovative applications. He mentions social applications and decentralized physical infrastructure apps as examples.
- He expresses excitement about possibilities in the AI sector within crypto.
- Ansen says that projects like Helium and Hivemapper demonstrate that crypto offers more than just gambling opportunities. Unlike protocols such as AMMs or lending markets, Helium cannot be easily forked.
- He regrets not investing directly in $HNT instead of purchasing mining equipment. He believes that active crypto users should be the first to explore and promote new applications.
How to use Crypto Twitter
- Ansen says that he has always been active online, even before entering the crypto space. He has built a diverse timeline on Twitter over time, receiving information from different areas of crypto.
- He adds that during his first cycle in 2017, he learned trading techniques from experienced traders on Twitter. Over time, he has developed a well-curated timeline that provides information from various areas of crypto.
Ansem’s Trading Style
- Ansem suggests allocating 70% of the portfolio to core holdings like $BTC and focusing the remaining 30% on more speculative altcoins.
- He mentions having a strong thesis on altcoins for short-term trading based on fundamental events and chart analysis.
How to build Conviction on a Thesis
- Ansem says that he spends time researching and building a thesis for longer-term holds. He focuses on projects that make sense to hold for at least 6 months or longer. He doesn’t worry about short-term dips or sideways movements if there is a strong future outlook.
- He adds that he followed Solana since early 2021, and observed network issues and lack of applications at that time. He witnessed the growth of the Solana ecosystem with new teams building on it.
- Ansem says that he engages in short-term trading with gaming coins, AI coins, meme coins, etc. He combines technical analysis (TA) and fundamental analysis (FA).
- He emphasizes that those who believe millions of people will actively use crypto protocols daily have a different perspective on which applications and blockchains make the most sense.
- Ansem makes comparisons to draw historical trends in innovation, where it was not always the first winner that succeeded in the long term. Examples such as Yahoo vs Google and Apple vs Microsoft highlight how initial consensus opinions can be proven wrong over time.
- He adds that it is important to consider longer-term investments and technological advancements when evaluating potential success.
- Ansem says that downtime issues with Solana’s blockchain could be negative for the speaker’s thesis. If downtime problems persist despite attempted fixes in 2022, it may require reassessment.
- He adds that market performance is another factor. If the market does not reflect bullish expectations, it may be necessary to reevaluate investment decisions. Examples of underperforming altcoins like $LTC and $XRP are given as cautionary examples where consistent market disagreement with one’s thesis should prompt further investigation.
How to Avoid Echo Chambers
- Ansem says that echo chambers tend to form when prices rise significantly. $BTC experienced this during its early days, and $ETH faced similar skepticism from $BTC proponents. People tend to align their beliefs with the assets they hold, making it harder to consider alternative perspectives.
- He adds that crypto markets are prone to forming cult-like followings around specific coins, regardless of their actual value or potential.
Traits of Successful Traders
- Ansem says that comfortability with being wrong and remaining humble is crucial. Controlling emotions during market fluctuations leads to sound decision-making.
- He adds that being okay with being wrong allows for continuous learning and improvement. Good risk management and maximizing wins are more important than being right in every trade.
- Ansem says that continuous practice, learning, and adapting are necessary to become a successful trader. Hammering at strategies, analyzing market responses, and journaling entries contribute to growth. Price is king in trading; news events can impact decisions but rely primarily on TA indicators.
Balancing Markets & Life
- Ansem says that it is crucial for traders to handle their losses well and not let them affect future decisions. Many people tend to avoid taking trades for a week after experiencing a loss due to emotional reasons. he addresses an audience question about tools and techniques to balance trading with other priorities in life, such as family and mental health.
- He adds that setting aside specific time periods where one does not look at markets can help maintain a balance. This could include weekends or certain periods during the day. It is important to have a strict schedule and not be fully immersed in trading all the time, especially during bull markets when there is constant market activity. Maintaining relationships outside of trading and having a way to unplug from the market is essential.
Most Common Trading Mistakes
- Ansem says that oversizing positions and going all-in can be a common mistake that can lead to significant losses if predictions are incorrect. Diversifying investments and having a longer-term portfolio is more sustainable.
- He adds that leveraged trading and being heavily invested in low-cap plays without proper risk management can result in substantial losses. Getting too attached to certain assets without considering market conditions can lead to holding onto positions even when they are losing value. Taking profits at appropriate times is crucial, regardless of long-term beliefs about an asset’s potential.
- Ansem says that it is recommended to evaluate each position in your portfolio objectively. If you were to sell all of it today, would you buy back 10%? If the answer is no, then consider cutting or reducing the size of that position. This approach helps to remain objective about the markets and make informed decisions about portfolio allocation.
- He adds that one misconception is that crypto is a scam. However, crypto has proven its inherent value over the past decade, with $BTC being recognized as a form of digital gold. Stablecoins are another important aspect of crypto, especially for people in underdeveloped nations who lack access to traditional banking infrastructure. They provide a means to send money without relying on centralized intermediaries.
- He adds that DeFi is an innovative aspect of crypto that allows for trustless systems running purely on code. It offers significant potential for further development and should not be dismissed as a scam.
- Ansem says that while decentralized exchanges like AMMs have been successful, there is still room for improvement in terms of speed and cost compared to centralized exchanges like Binance or Coinbase.
- He believes that more innovation will occur in DeFi, potentially bringing it closer to comparable levels with centralized exchanges. The future of DeFi may involve advancements in areas such as gaming and other applications, expanding beyond the base infrastructure that has been built so far.
Trading Rules & Gut Feel
- Ansem says that one crucial rule is to allocate 70% of your portfolio to long-term investments and 30% for shorter-term trades. Sticking to predetermined risk parameters is essential. Journaling trades and following set invalidations helps maintain discipline.
- He adds that not adhering to one’s own rules can lead to mistakes and poor decision-making. Listening to the past self through journaling is emphasized. While there are no strict rules regarding trade timing or device usage (phone vs. computer), diversification is important, to avoiding being overly exposed to high-risk assets.
- He adds that working on oneself and understanding past sentiments during different market conditions, can be helpful in making better trading decisions. Gut feelings can play a role in trading decisions, especially with experience. Sometimes an opportunity presents itself, and without hesitation, one takes action based on intuition. Gut feelings should not replace proper analysis but can complement it when supported by experience.
Cosmos Eco
- Ansem says that he remains bullish on $ATOM for this cycle. It can be challenging for people to understand the diverse nature of the Cosmos ecosystem, as each chain operates independently.
- He adds that, unlike Ethereum, there is no single chain in the Cosmos ecosystem that serves as a rallying point for investors.
- He adds that he considers the inflow of money into different ecosystems when making trading decisions. He highlights the importance of considering which projects within an ecosystem are likely to attract investment.
Valuation Frameworks
- Ansem acknowledges that valuing cryptocurrencies is challenging due to the early stage of the industry. Traditional metrics like price-to-earnings ratios (P/E) may not be applicable in crypto as it is primarily driven by the growth potential of blockchains and protocols.
- He adds that comparative valuation is a more practical approach for the speaker. He compares different cryptocurrencies based on factors such as market capitalization and market share.
- For example, if $ETH has a market cap of $250 billion and $SOL has a market cap of $10 billion, the speaker may consider $SOL to be undervalued compared to $ETH.
- Ansem says that he frequently engages in pair trades, where he takes long positions on one asset while shorting another. This strategy allows him to capture relative value opportunities between different cryptocurrencies.
- He says that he finds it difficult to predict specific price targets for cryptocurrencies due to speculative premiums and unpredictable market behavior. Instead, he relies heavily on technical analysis to identify trends and patterns in real time.
- Ansem says that TA helps them understand how tops and bottoms form on charts, enabling them to make directional bets on future price movements. He emphasizes that understanding human psychology reflected in charts is crucial for successful trading decisions.
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Show Information
- Medium: Youtube
- Show: Crypto Market Wizards
- Show Title: Ansem – Crypto Market Wizards EP8
- Show Date: December 13, 2023