The Edge Podcast - Finding Your Edge As A Crypto Investor

In this episode of The Edge Podcast, which took place on June 13, 2024, DeFi Dad and Nomatic hosted Nick Drakon from Revelo Intel to discuss strategies for developing an edge in crypto trading, the importance of rigorous analysis, adapting to market changes, and more. Read our notes below to learn more.

Background

DeFi Dad (Host) – Host of Edge Podcast

Nomatic (Host) – Co-Host of Edge Podcast

Nick Drakon (Guest) – Founder of Revelo Intel and Revelo Ventures

Revelo Intel – a research platform that provides a source of reliable, consistent, and unbiased crypto research.

Developing an Edge in Crypto Trading

Nick shares his background, mentioning that he dropped out of law school in 2002 to play poker professionally. He highlights that playing poker taught him valuable lessons that apply to investing and trading, such as the importance of rigorous analysis and strategic planning.
Nick explains that poker requires players to fold and admit defeat frequently, which translates to making small, frequent bets in trading and being okay with small losses. He stresses the importance of cutting losses quickly and not holding onto positions out of stubbornness.
Nick says that many crypto assets can lose significant value rapidly, unlike traditional stocks. He explains that being able to admit defeat and move on is crucial for survival in crypto markets.
Nick highlights the importance of understanding why you’re in a position and being ready to exit if the reasons change. He compares this to professional traders who manage their risk by aiming to lose small amounts on bad trades and make larger gains on successful ones.
Nick says that successful trading involves being comfortable with losing small amounts frequently and not getting paralyzed by the fear of admitting defeat. He warns against holding onto assets stubbornly, especially in volatile markets like crypto.

Nick Drakon’s Pragmatic Approach to Trading

Nick jokes that the “diamond hands” and “hodl” mentality is akin to a mental illness. He highlights the importance of being pragmatic and understanding market dynamics, especially regarding token unlocks.
Nick explains his strategy of running a long-short book, maintaining a balanced exposure without taking large directional risks. He highlights the predictable nature of token unlocks, where large amounts of supply enter the market, leading to price drops.
Nick illustrates this with the example of the token $PYTH, which experienced a significant price drop following a major token unlock. He notes that savvy investors will avoid building long positions or will sell existing holdings ahead of such events, anticipating the increased supply and subsequent price decline.
Nick says that many of his short positions are based on the simple supply and demand dynamics of token unlocks, rather than complex theses about project failures. He advises looking at tokens with upcoming large unlocks and positioning accordingly.
Nick reiterates that the key to successful trading is the ability to let go of losing positions and not be swayed by narratives like “diamond hands.” He stresses the importance of focusing on making money rather than being right, and being willing to adjust positions based on changing market conditions.

Trading vs. Holding: Nick Drakon’s Strategy for Crypto Investments

Nomatic asks Nick about the long portion of his book, questioning whether those investments are trades or long-term investments.
Nick says he doesn’t have long-term crypto investments other than Bitcoin, which he considers a different asset class that solves a different problem, such as betting against global currencies due to excessive government money printing.
Nick explains that his approach to crypto is trading-focused, distinguishing between investments like real estate, stocks, and Bitcoin, which he owns for the long term, and other crypto assets, which he trades.
Nick believes the crypto market will be larger in the future, but he doesn’t have visibility on the long-term viability of specific tokens. This uncertainty leads him to trade crypto assets instead of holding them long-term.
Nick describes his typical trade timeframe in crypto as between two or three days to two or three weeks, focusing on specific catalysts and efficient ways to express his views. He adjusts his strategies based on the speed and lack of a quarterly cycle in crypto.
Nick mentions being fundamentally bullish on some projects, such as Thorchain ($RUNE) and NEAR, but he still trades these assets rather than holding them long-term. He buys on pullbacks and trims positions on gains.
Nick treats each crypto asset as inventory, buying and selling without emotional attachment, aiming to make more money, which he can then invest in other assets like real estate or Bitcoin. He denominates his book in US dollars for practical reasons.
Nick anticipates that this approach will change when governance and cash flow sharing in crypto improve, allowing him to treat certain tokens like shares of traditional companies and hold them long-term.

Shifting Regulatory Landscape and $ETH

DeFi Dad asks Nick if anything has changed for him in relation to $ETH with the spot ETF approval and how he is thinking about ETH now that the approval has happened.
Nick says that over the short term, consensus is too bullish on $ETH, but over the long term, consensus is not bullish enough. He thinks the ETF approval isn’t about $ETH itself but signals a shift in the regulatory landscape.
Nick explains that the bullishness isn’t because $ETH is special but because it indicates a change in the government’s stance on crypto. He notes the outright hostility from the current administration and the SEC’s repeated losses in court. The sudden approval of the ETF, after Bloomberg predicted it wouldn’t happen, signals a change in regulatory attitudes.
Nick says that the way the approval happened suggests that higher authorities pushed for it, indicating a reduction in regulatory hostility. He believes this shift is significant regardless of who wins the next election, as it shows a recognition that attacking crypto might cost votes.
Nick says that while he’s not betting on specific political outcomes, he does believe the market is mispricing the likelihood of Biden not being re-elected. He stresses the importance of reacting to political changes as they happen rather than holding fixed views based on political preferences.
Nick distinguishes between Bitcoin and $ETH, explaining that Bitcoin is seen as a store of value and a hedge against inflation, owned by notable financial figures and institutions. In contrast, $ETH, despite being the second-largest crypto asset, doesn’t have the same level of institutional support or clear narrative.
Nick warns against assuming that the inflows into the $ETH ETF will mirror those into the Bitcoin ETF. He argues that while Bitcoin has no direct competition, $ETH does, and this affects its adoption and perception. He believes that the $ETH ETF will eventually see significant inflows, but it will take longer than Bitcoin.
Nick says that while the ETF approval is positive for $ETH, he expects the inflows to be slower than those for Bitcoin. He thinks that institutions will likely allocate to Bitcoin first due to its clearer narrative and lack of competition.

$ETH’s Future and Informational Asymmetry

DeFi Dad agrees that in the short term, Bitcoin continues to have the dominant narrative around digital gold, but sees potential for traditional finance investors who understand Ethereum’s unique qualities. He notes that influential figures like Ken Griffin, Carl Icahn, and Ray Dalio have expressed interest in Ethereum, and even Jamie Dimon acknowledges its use cases. He believes the regulatory barriers are not completely gone, but the situation has improved significantly.
Nomatic adds that $ETH has more aspects for traditional finance analysts to explore compared to Bitcoin. He likens $ETH to a new tech stock, offering parallels to tech investments due to its potential cash flows. However, he agrees with Nick that it will take time for this narrative to develop.
Nick acknowledges that there’s more to analyze with $ETH, but points out that current cash flows compared to its market cap are unattractive. He highlights that much of the activity generating these cash flows, such as NFTs and meme coins, might be seen as trivial by traditional finance analysts.
Nick also notes the nascent and risky nature of DeFi, making it challenging for serious analysts to build a strong case for $ETH. Despite regulatory clarity, the current landscape includes significant speculative and sometimes dubious activities, which might deter serious traditional finance interest.
Nomatic asks Nick about the presence of informational asymmetry in the crypto market and how long it might last.
Nick says that informational asymmetry exists and will continue to do so. He compares it to the evolution of the poker industry, where early players had significant edges that diminished over time as the game evolved.
In crypto, the unregulated nature of the market allows for significant information edges. He highlights the role of individuals with insider knowledge and the collaborative nature of the space that can lead to information advantages.
Nick explains that the lack of regulation means that even non-nefarious insider information is abundant. He gives the example of public information like token unlocks, where many market participants fail to do the necessary research, allowing others to profit from this negligence. He says that while the SEC is very effective in regulated markets, the crypto market currently lacks such oversight.
Nick notes that sophisticated tools and data analysis can also provide significant edges. He mentions Revelo Intel and a tool called Kaito that uses AI to gather and analyze market data, giving users insights into market trends and activities. These tools are expensive but can be highly profitable if used correctly.
Nick also says that it’s a great time to be a motivated and hardworking crypto investor or trader. He advises focusing on meaningful data and analysis rather than following market entertainers who may not provide valuable insights.

Unlocking Crypto Potential: Revelo Intel and Revelo Ventures

DeFi Dad finds Nick’s insights inspiring for developing an edge in the crypto space. He appreciates Nick’s modest approach when discussing Revelo Intel and prompts him to share more about the platform’s offerings and Revelo Ventures.
Nick explains that he started Revelo Intel in February 2023, with the thesis that the crypto asset class will be significantly larger in five years. He describes Revelo Intel as a research company providing valuable information for traders and investors. The platform started with summarizing podcasts into readable notes and has since expanded to include several research products.
Nick outlines the main products offered by Revelo Intel:
- Project Breakdowns: Comprehensive reports that gather and organize all available information about a specific project into one document. These are updated in real-time and serve as an encyclopedia for the project.
- Market Intel: Investment memos that provide detailed analyses and long ideas for specific projects, including catalysts, data, and risks. These are designed for a two-week to three-month time horizon.
- Industry Intel: Reports that cover specific narratives, categories, or chains within the crypto industry, providing a broader view than individual project analyses.
Nick mentions a private Discord channel for paying members where they can discuss ideas and analyses, fostering a community of informed traders and investors. The service is priced at $150 per month or $1400 per year.
Nick also discusses Revelo Ventures, launched two months ago. It involves investing in early-stage deals, with the team investing their own money first and then offering the opportunity to the syndicate. This venture focuses on serious investors looking to participate in private rounds, which can range from $40 million to $500 million valuations.
DeFi Dad endorses the value of Revelo Intel’s deep analysis, noting that their reports have been used to prepare for interviews. He encourages listeners to explore revelointel.com and follow Revelo Intel on Twitter.
Nick says that the greatest value from Revelo is learning from their process and output to inform one’s own investment decisions. He encourages readers to reverse-engineer Revelo’s reports and apply similar methods to their analyses. He suggests using tools like tokenunlock.com to predict price trajectories and understand market dynamics. Nick highlights the importance of developing a personal process rather than relying on tips from others, which he views as unsustainable.

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Show Information

Medium: YouTube (Video)

Show: The Edge Podcast

Show Title: Finding Your Edge As A Crypto Investor

Show Date: June 13, 2024