Part-Time Degen: Notes on Speculation & Crypto Markets

I have spent an absolutely absurd amount of my time over the last three years following crypto… the tech, the markets, the culture, the philosophy, the politics, all of it.

One reason it has kept my attention for such a sustained period of time is being a participant in the “industry” feels like you’re playing a massive multiplayer online money game (mmOMG?). Everyday magic internet money is flying around, up for grabs, and the dopamine pulls you in.

After years of doing the thing: reading blog posts & technical white papers, trading coins and NFTs, making money and losing a lot of it, 2x-ing my way through 100s of podcasts, and scrolling through Discord and Twitter for an eternity… I want to compile some of the lessons I’ve learned about the trading & speculation side of crypto. The mission here is to collect my own thoughts and pay it forward.

I have eight points. Let’s get it.

1. Everything in crypto is a social token

2. All short and medium-term price action is driven by narratives

3. The main way to make money is by being early to new themes

4. Markets are made up of different types of players, and money flows based on how they behave

5. Principles are necessary when allocating money

6. Do your own research

7. Let things settle after major price swings

8. The game is always live

Everything in crypto is a social token. Put differently, all tokens are a proxy for human attention, where prices go up and down based on how many people are following a given project at a given time. This means crypto speculation is dominantly a social activity. All we’re doing is trading derivatives of people’s attention, whether that’s in the form of coins or NFTs. One moment Solana has the most mindshare, the next it’s on to another alt L1 blockchain. Another week it’s Bored Ape Yacht Club blowing up the internet for a bit, then it’s the Moonbirds NFT mint. And so on.

All short and medium-term price action is driven by narratives. It’s people calling for ETH to go to $10K because of the merge, or CryptoPunks pumping after an auction house announces they’ll be selling some. It’s metaverse coins like Decentraland and Sandbox pumping after Facebook rebranded to Meta. And many other such cases. There is a lot of interesting technical innovation happening in crypto, but that only matters insofar as good technology is a good ingredient for a good story, and it’s the story that drives price action, not the tech.

The main way to make money is by being early to new themes. The best capital allocators take positions in something that is non-obvious that eventually becomes consensus: Bitcoin, Ethereum, DeFi, NFTs, play-to-earn, memecoins (whether of the food or dog variety), DAOs… at some point all these categories were weird things that were never going to happen, until they did. The challenge is figuring out what the new narrative might be, then determining the best things to bet on in those verticals.

Markets are made up of different types of players, and money flows based on how they behave. Traders vs. investors. Retail vs. institutions. Tourists vs. locals. Group chat A vs. group chat B. Each of these constituents could be buying or selling some set of tokens over some time horizon for different reasons. Making sense of who is doing what, when and why can give you an edge. One consistent example of this is how NFT markets often go through mini bull runs independent of larger crypto sentiment because it’s a mostly retail driven game.

Principles are necessary when allocating money. If you don’t create rules for your market participation, it’s easy to end up buying and selling stuff based on fear, greed, or other emotions. To guard against the flaws in human psychology, it can be helpful to reflect on what you're buying, why, with what size, over what time horizon, and with what stops i.e. at which points profits or losses will be taken, depending on if an idea goes well or not. Questions like these give constraints to allocating money. They turn the open-ended game of “always on” markets into a finite game with rules, which helps you manage your risk.

Do your own research. Everyone in crypto is shilling something & wants you to buy their bags. Instead of taking advice and trading ideas from social media, then getting dumped on… do your own thinking, form your own opinions, and place bets accordingly. There’s that Katy Perry lyric, “I stood for nothing, I fell for everything.” Most retail people in crypto act like that, myself included. So, before taking a position think: what’s the game with this token? Who are the players? Who buys higher? When and why? If you don’t have solid answers for these things, you’ll have zero conviction when prices move (up or down).

Let things settle after major price swings. If you make money, what tends to happen is you quickly yolo those funds into something else. This behavior is often called the house wealth effect. TLDR: you don’t relate to money you recently earned the same way you relate to money you’ve earned in the past. It’s best to chill, sit on your funds in stablecoins for a week, then make new decisions after getting some space. This applies on the downside too. If you lose a lot of money, it can be tempting to try and revenge trade and make it all back using leverage, shitcoins, or other means. In my experience, the best play is to sit on your hands for a bit, reflect on what happened, and reassess.

Finally, the game is always live. This is a good note to end on for two reasons. First, it’s encouraging to know that no matter what your past experiences have been with markets, they don’t define your future participation. There are always other opportunities. No matter how badly some trade went wrong, you can always engage again, so long as you survive. Second, and quite literally, the online crypto casino never closes. It’s ok to take breaks and step away for a season because the chaos will be here when you get back.

Shout out to Nani, Hype, Emmy, Tamagoyaki, and Jack, for feedback and review.