Lessons learned from spending millions in the crypto world before the bull market returns

It’s the end of the year. Reflecting on the mistakes I made over the past year, I’ve summarized several lessons learned.

Sharing them not only serves as a wake-up call for myself but also hopes to provide some reference for everyone.

The principles are actually very simple, but only after experiencing loss can you truly understand.

Just like the moment your position explodes, then you regret why you opened such high leverage.

1. A Trader’s Paradise, an Investor’s Grave

Humo, a hedge fund manager, has a very precise definition of investing and speculation:

“If your returns depend on the price difference of the same asset at different times, that’s speculation. If it depends on intrinsic value appreciation and dividends, that’s investing.”

In the first few years I got into the crypto world, I was a pure BTC holder, and I achieved decent results.

This strong positive feedback led me to seek a “sleep-well investment” in most of my time in crypto.

That’s the security brought by so-called “value investing.”

I looked at teams, whitepapers, and fundamental data, trying to find assets I could hold long-term for a year or two.

So-called TVL, active wallet addresses, trading volume—seemingly detailed data—were the best sleep aids I had for holding assets.

But this is not much different from BSC meme players buying assets and holding them to death, waiting for CZ or heyi to reply.

I sleep with the expectation that today’s assets might grow, but tomorrow they could zero out.

They sleep with the expectation of celebrity effects.

I am no better than them.

The reason is, [the crypto market has never been fundamentally priced]

• In a bull market: sentiment-driven pricing may account for 60%, chip distribution 30%, and so-called “fundamentals” only 10%.

• In a bear market: sentiment accounts for 40%, chip distribution 50%, and fundamentals still only 10%.

We are in a market that is overly efficient according to behavioral finance, with very obvious swing effects of emotion. In such a market, speculation is much easier to profit from than investing.

If it were only this, value investing in crypto would hardly be called a “grave.”

The two most frightening points about “value investing” are:

1⃣ When you deceive yourself into thinking you’re buying a coin from the perspective of value investing.

A 10%-20% drop, and you comfort yourself: “Market fools, I am sober while others are drunk, spot holding is safe,” you don’t cut losses, and even want to add more.

A 50% drop, you vaguely realize you might be wrong, but because you’ve already lost too much, you’re reluctant to cut losses.

A 90% drop, you silently transfer this coin to a rarely used wallet. When next time you see this coin up 100% in a group, you realize you need it to rise ten times more to break even.

2⃣ When your initial motivation was to speculate on buying coins, and after losing, you switch to value investing:

Drop 10%, “This coin still has hope, waiting for a whale.”

Drop 20%, “Actually, I am a value investor, holding at this price won’t lose too much.”

You know the rest of the story.

So how does money disappear?

I read this principle a long time ago, but only after experiencing GMX, DYDX, JUP, MET, PUMP, CLANKER, BONK did I truly understand it.

2… In the Pre-Game All In, in the Climax Stop

Regarding position management, GCR has a principle that many have overlooked but is extremely important:

“In altcoin cycles, you should maximize risk exposure when the trend just reverses, and gradually protect capital over time.”

This is contrary to most people’s intuition.

Over the past two years, I have made this mistake countless times.

AI Agent Market

Last year, during the start of the AI meme season, I participated with small positions in goat, ai16z, and some other meme assets. The multiples were good, but the absolute gains were average. Then, until swarms, my friends started making tens of thousands of dollars at a time, and I began to increase my bets. I started losing heavily. I think many people, like me, if not for Trump later, the returns might have even underperformed BTC.

Trump saved many lives at the beginning of this year. Most people’s fate was to start swimming naked after the AI agent hype subsided. But Trump suddenly appeared when AI agent started to decline, giving many an opportunity to exit in a rush, transitioning from AI memes to Trump and completing their exit.

BSC Market

In September, I wasn’t really scanning chains or playing memes anymore, but I saw CZ’s tweet about 4 on that afternoon. I bought a few million worth of 4bnb and didn’t care. Later, the BSC market surged dramatically. I realized late and missed the chance to increase my position early on. To make up for missing the early multiples, I was forced to use the profits from 4 and funds on chain to buy Binance Coin.

Looking back, if I had increased risk exposure early on, I would have been more comfortable doing anything later. Even if I was wrong, the losses wouldn’t be too big.

Most of the time, our instinctive reactions are:

• When the trend just begins, the future is uncertain, so we wait and watch;
• When the trend is hot, and consensus is established, we go all in.

Because at the trend reversal, the market still bears the scars of the last bear market, and all “stories” sound like scams. At the peak, the stories become perfect, and consensus reaches its zenith.

But from a risk-reward (Odds) perspective, the reality is quite the opposite:

• At the early signs of a trend (reversal point): Though full of uncertainty, the odds are highest, with limited downside, worth betting big for higher gains.
• At the climax (consensus point): Though looking “stable,” prices have already overextended future expectations, with significantly increased downside risk. At this point, the right move is to “stop,” not go all in.

3. Beware of PE and Buyback & Burn Traps

All PE and cash flow valuation methods rely on one big assumption: that performance is sustainable in the long run.

But since BTC’s birth until today, nothing has been truly sustainable except BTC.

All leading projects in various sectors have been replaced. Looking at the Top 10 on CoinMarketCap 5 years ago, more than half are now unfamiliar or even zeroed out.

The leader in the PERP sector has shifted from dydx and gmx to hyperliquid.

Countless other sectors have been discredited. Most projects don’t survive more than a year.

PE valuation and buyback & burn are the most painful pitfalls I’ve encountered in investing. Similar to the earlier discussion on “value investing.”

When some projects are presented to you at 5x or even 3x, it’s very hard not to buy.

Because I still hold a bit of hope, I tell myself to beware of PE traps, but I believe many people can avoid this trap altogether.

As for me, I still feel I haven’t lost enough, still have some illusions about the industry, so I’ll persist for another year.

Lastly

The lesson humans have learned from history is that they never learn from lessons. A few days ago, 0xPickleCati’s article explained this very clearly.

Some pain can only be understood and distilled into experience if personally endured.