2021 crypto scorecard

tl;dr: like A-?

Disclaimer
This is not a solicitation to buy or sell any particular cryptocurrency or crypto asset. Here I share my personal views on the market which you mind find interesting or thoughtful. I don’t sell advice or manage money on a paid-basis at the time of writing this blog.

Summary

  • I sold off risk, mainly into stables. 💰
  • I’m finding repeatability within my process. 🤖
  • Discipline was fairly good: I didn’t fomo buy anything, although did panic sell at a couple points for reasonable prices, but arguably could have done better (experience comes with age). 🧙‍♂️
  • If I were a better trader I could have sold more. 💰💰💰
  • Biggest learning point: getting a better practical feeling of liquidity. ☔

Compared to Beeple making ~$100m selling pictures I didn’t do that well, but compared to where I was before, I’m in a better place and felt like I maintained discipline as the market moved. I don’t care about outperforming someone else, but rather improving my own situation. 🔥

I’m assessing myself using my own criteria and how I felt I did according to my own plan, which may sound like subjective bullshit but I’m happy with how I did and I’m not selling any trading courses or tips, so I have no real reason to convince the reader in some greater manner (“check the chain”).

Trading went well in 2021

I suspect some of the NFT traders spiked to a networth at peak greater than my own but subsequently they may not have sold off enough risk to weather a bear market. My plan was always to sell enough in 2021 to get safely through to the next bull. That was achieved.

Consequently, I hope I can reimplement my plan and do the same from 2022/2023 going into 2025.

The seeds of 2021 were sown from 2017 into 2019 🌱🧑‍🌾

For a brief context of what made 2021 successful it is to appreciate the planning on previous years.

I bought a bunch of things in previous years and then waited until last year to sell. In 2017 I participated in the Dot ICO but I didn’t fomo buy anything in 2017, that’s also true for 2021. So that’s two fomo peaks where I maintained good discipline.

One complaint of 2019 was that I fomo’ed a bit into the rally. I actually bought BTC and ETH at reasonable prices in late 2018 and early 2019, but then added some more in the fomo rally. However, that all washed out come 2021. I also participated in Polkadot’s 2017 ICO, so that was also a huge position coming into this past cycle.

2021 🚜

I bought almost nothing in 2021. Why? I didn’t jump on to the NFT bandwagon and I didn’t see many projects that were obvious buys. The whole market was frothy so I have difficulty determining what is fair value. Crypto is wild anyway, so fair value is nebulous, yet I did buy something. There was the RMRK ICO* that had an implied value circa $15m — 20m. That’s comparable to private seed rounds, and this was a public sale so to me that is fair value for crypto.

* RMRK is an NFT platform, so I do have exposure to that theme, but I didn’t trade jpegs.

Many would disagree

In simplest terms of managing risk, I’m looking to buy low and sell high. It might sound too simple or dumb to be true, but it’s possible to perform if you are patient. Therein lies the problem. Crypto is fast moving and encourages people to gamble, ergo patience is rare.

So what did I do in 2021, if I didn’t buy? Well, I sold. Buying low already happened, turn came the time to sell high. My strategy wasn’t anything more clever than that. In a previous blog I outlined some thoughts on the 4-year cycle model of crypto prices. That was something I had assumed to be mostly true in 2021 as I did in the previous cycle. The plan was always to sell something in 2021 then wait for an inevitable crash before buying again.

Now here we are in 2022 and prices have already crashed. This feels like a textbook continuation of the 4-year cycle regime. I don’t know if right now is the bottom but certainly the market is a lot lower than December. As I said in the previous blog, I suspect it is too early to buy here. If this cycle plays out like before then there will be plenty of time to buy later in 2022 and perhaps early 2023. It won’t play out exactly like before of course, so I can’t give exact timeframes for the future.

If the market stays broadly predictable within the 4-year cycle then it presents a great opportunity for people to time the market. Typically an idea that’s frowned upon, but the cycles are long enough that you don’t need perfect timing to get in and out.

2022: 2018 reloaded? 🌱🌱🌱🌱🧑‍🌾

Despite saying that I think it is too early I already broke my discipline recently (Apr/May 2022) and bought little positions and already down ~40% on that position due to the Luna drama weighing down the market. 🚀🚀🚀

So the task now in 2022 is to look for low priced crypto assets that will survive into the next cycle. Almost with great certainty we can say Bitcoin and Ethereum will survive. I’m very sure but hate to be presumed arrogant, however they are the projects with the greatest adoption. In 2021 I actually sold my BTC and ETH near the top (sorry), so I don’t hold any now but would consider buying again when I feel the conditions are attractive. I see them as safe tokens, but I suspect they will provide a lower return than projects with lower market caps. I do feel that I can be more risky with my bets and drive a greater return, without yoloing everything into micro caps.

Beyond BTC and ETH, I have to temper expectations on survivability. This is the trade-off for finding better returns. Higher risk and hopefully higher returns.

I hold more Dot than anything, so naturally I hope that it survives into the next cycle. I believe that it will, but will it thrive and hit new ATHs? I don’t know. Fantastic engineering but more is required to drive adoption. Potentially, this is something that the ecosystem teams can encourage by making a big push with marketing. 🙏

Moreover, my portfolio is skewed towards the Dot ecosystem, so some risks are doubled up. Betting on Polkadot and then betting on a project within this ecosystem. An ideal portfolio should blend holdings from multiple ecosystems, and of course I acknowledge that crypto as a whole is correlated.

The skewing of the portfolio was in part due to the fact that my DOT moved much further that neither BTC or ETH and an imperfect trading choice I made in 2021. The combination of liquidity and timing in 2021 made it easier to sell the BTC and ETH to take big chunks of risk off the table. Coming up against liquidity challenges in the pairs that I like on the exchanges I trust was a key learning point in 2021. 💡

I don’t yet have new targets to balance out my exposure yet, so that’s a challenge for 2022 and 2023. I suspect I will be quite skewed towards the DOT ecosystem going into 2025 given:

  • it is the ecosystem I know best; 🧠
  • a desire to see DOT hit new ATHs; 🚀
  • the practicality of rotating the whole portfolio. ♻️

What if this is a supercycle? 🚴🚴🚴🚴

See previous blog, for my understanding of what I think the term means.

I searched for the word ‘Peloton’, glad I did it in a private tab, but perhaps the marketing algos will hit me anyway?

If 2022 does something more V-shaped rather than play out like 2018 then what?

I’m still mostly risk on so if the market decides to instantly pump tomorrow to new ATHs (hyperbolé), well I’m exposed to that upside. Said another way, if the 4-year model is broken to then I’m going to be fine. I implicitly assume the industry survives, so not a model that’s broken such that the whole industry dies. 😅

That said, I have a bunch of stables I’d like to redeploy and I’d be a little salty if I didn’t act quickly enough to deploy while the market is depressed. So while I believe the market is going to be down for a long time and I’m not yet throwing big chunks of stables into risky assets, I also worry that I will never know the right side I’d the chart.

What’s the strategy for dealing with that?

  • Look for a pullback on publicly traded tokens.
  • Look for newly launching projects with ICOs (rare).
  • Look for private seed rounds.

There are pros and cons to each of these and are the subject of a follow up blog.

The main point being that I’m looking for new opportunities that I can fit into my risk management process. Low valuations are nice, but liquidity may be nicer. I suspect I will blend the approaches. 🍲

About me🎯

I spend the majority of my time worrying about not being wiped out by the crypto market. When I find spare time I enjoy chatting to new teams just starting their journey in the industry.

Previously, I work at the Web3 Foundation (mainly running the grants program) which launched the Polkadot network.

I’m on Twitter: @EAThomson.

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