Bull market or bear market, if you can pick strong narratives you can make ridiculous returns in #crypto. In 2022 narratives like MoveToEarn and Perp DEXs printed money. In 2023 I'm eyeing new narratives, here's what they are and how I find them 🧵👇
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My investment thesis is based on game theory and a version of value investing heavily modified for crypto. Game theory is about analysing the actions and desires of all the players in a game, in this case the crypto market, in order to predict what they will do next.
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The first step - of many - is to tap into the market's mind. Once you understand their motivations, desires and perceived best interests you can make predicti future market trends. So, how do we tap into the market's mind? First, we need to understand it 👇
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◆◆ Keynesian Beauty Contest (KBC) ◆◆
In 1936 economist John Maynard Keynes wrote about the KBC, a game where contestants are shown pictures of 100 people and asked to choose the ones they consider the most attractive. If you picked the most popular choice you win.
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In 1936 economist John Maynard Keynes wrote about the KBC, a game where contestants are shown pictures of 100 people and asked to choose the ones they consider the most attractive. If you picked the most popular choice you win.
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WTF does this have to do with crypto? Bear with me 🐻
In this game, base-level thinkers would pick the faces they found the most attractive. First-level thinkers know better so they picked the faces that they think most base-level thinkers would pick.
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In this game, base-level thinkers would pick the faces they found the most attractive. First-level thinkers know better so they picked the faces that they think most base-level thinkers would pick.
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Second-level thinkers try to be another step ahead and pick the faces they think that first-level thinkers are picking. This can go infinitely deep.
KBC is an analogy for how financial markets work. The faces are the crypto and the people picking are the investors.
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KBC is an analogy for how financial markets work. The faces are the crypto and the people picking are the investors.
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◆◆ Are You A Base-Level Thinker? ◆◆
If you invest in cryptos simply because you like them, then yes, you probably are and it is a naive strategy. A crypto won't do well just because you like it. But most people are not actually base-level thinkers.
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If you invest in cryptos simply because you like them, then yes, you probably are and it is a naive strategy. A crypto won't do well just because you like it. But most people are not actually base-level thinkers.
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◆◆ First-Level Thinkers ◆◆
Most people put at least a little thought into picking projects that they think others will pick. Many times this is based on flawed logic or their opinion is influenced by their base-level attraction to the project.
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Most people put at least a little thought into picking projects that they think others will pick. Many times this is based on flawed logic or their opinion is influenced by their base-level attraction to the project.
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First-level thinkers believe they're being clever but they're usually following the herd. They can make money if they're disciplined in taking profit. However, they won't do as well as those who lead the herd. But how do you do that?
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◆◆ Next Level Thinking 🤮 ◆◆
Yes, I know how cringe that sounds, bear with me. The next level is predicting what cryptos base-level and first-level thinkers will buy before they buy. And also selling before they decide to sell.
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Yes, I know how cringe that sounds, bear with me. The next level is predicting what cryptos base-level and first-level thinkers will buy before they buy. And also selling before they decide to sell.
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So how do you shift your thinking from the herd mentality of following narratives to predicting narratives and positioning yourself before the herd catches on?
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◆◆ How To Outthink The Market ◆◆
Crypto is a game where players make decisions based on their own info, expectations and the actions of other players.
If you understand how other players think and what drives their decision making you can predict what they will do.
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Crypto is a game where players make decisions based on their own info, expectations and the actions of other players.
If you understand how other players think and what drives their decision making you can predict what they will do.
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I try to spot emerging narratives in crypto so I can buy before the herd buys and sell before they sell.
I get it wrong sometimes but the payoff is so huge when I'm right that I can afford to be wrong. How do I predict what the herd will buy before they buy?
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I get it wrong sometimes but the payoff is so huge when I'm right that I can afford to be wrong. How do I predict what the herd will buy before they buy?
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◆ 1. Social Media ◆
Most people do not use social media correctly. Social media gives you a peek inside the mind of the average investor.
We all know this, that's why we meme about doing the opposite to what the herd is doing.
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Most people do not use social media correctly. Social media gives you a peek inside the mind of the average investor.
We all know this, that's why we meme about doing the opposite to what the herd is doing.
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But most people do not use enough social media. Twitter is not enough, you need to be on TikTok, YouTube, Discord and Insta if you truly want to tap into the mind of the average crypto investor.
And that's just the Western crypto trader.
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And that's just the Western crypto trader.
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GCR brings up a great point about WeChat in the following tweet. Having insight into Asian market narratives is helpful.
TikTok is great for tapping into the mind of young investors. Twitter gives you insight into market sentiment and psychology.
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TikTok is great for tapping into the mind of young investors. Twitter gives you insight into market sentiment and psychology.
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YouTube is my go-to for analysing when to GTFO. When every YTer is talking about a narrative and their fanboys are going all in I start taking profit.
Recently Twitter n Discord have been huge for identifying new narratives early like MoveToEarn, Perp DEXs and gambling
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Recently Twitter n Discord have been huge for identifying new narratives early like MoveToEarn, Perp DEXs and gambling
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Discord is especially important. Join a new project's Discord and see how fanatical and engaged the early community are. Fanaticism breeds fanaticism so if the early users are obsessed and the team on Discord harnesses that obsession you could be on to a winner.
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The key with social media is not to get caught up in the hype and follow the herd. You want to use it to tap into the market's mind and predict what they will do next, not become them.
An example of this is the post-FTX hysteria that led to a bank run on many exchanges
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An example of this is the post-FTX hysteria that led to a bank run on many exchanges
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When traders are scared to trade through exchanges but still want to trade, where do they go? Perp DEXs, which went 🚀 after the FTX crash. $GMX and $GNS are two examples of existing ones that went to ATHs.
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You might be thinking, "well, isn't that just following the herd?" No, not if you got in at the start of the trend. The herd got in weeks later and they also missed the newer Perp DEXs... Like $VELA which is up over 30x (thanks to @CryptoKaduna for that one 👊) Next...
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◆ 2. Big Players ◆
Also known as smart money, the big players in crypto like VCs and wealthy investors are good at creating narratives because they have huge marketing budgets and a lot of connections.
Let's stick with Perp DEXs as an eg of a recent huge narrative.
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Also known as smart money, the big players in crypto like VCs and wealthy investors are good at creating narratives because they have huge marketing budgets and a lot of connections.
Let's stick with Perp DEXs as an eg of a recent huge narrative.
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I've been invested in and sharing perp DEXs like $GMX and $GNS since early/mid 2022. Why? Because I saw the big money sniffing around.
With GMX Arthur Hayes and VCs were buying on the open market, not even presale, they really wanted a piece 👀
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With GMX Arthur Hayes and VCs were buying on the open market, not even presale, they really wanted a piece 👀
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Also, Orderly raised $20M of funding in June another example of smart money interest in Perp DEXs.
These people have the money, connections and power to create a hot narrative and convince base-level and first-level thinkers to buy (after they load up of course).
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These people have the money, connections and power to create a hot narrative and convince base-level and first-level thinkers to buy (after they load up of course).
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And that is exactly what happened. Perp DEXs have been in their own bull market since mid 2022 and those of us who were early have been printing money.
It wasn't even that hard to see this coming. You just need to be active on social media and read crypto news.
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It wasn't even that hard to see this coming. You just need to be active on social media and read crypto news.
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A lot of this is about connecting dots and making assumptions. You read on CoinDesk that Orderly raises $20M, you know there's VC interest in perp DEXs. You see on social media that Hayes and VCs are buying GMX on the open market, that's extra confirmation.
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Go on the GMX discord and you see how fanatical the community are. You see them tracking wallets and talking about more big players loading up. These are all signs that the smart money is moving in.
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And you know that they will use their resources to pump the Perp DEX narrative so you can start loading up on new and existing projects in that sector.
Another tip is to look at projects Binance is incubating, it can give you some insights into upcoming narratives.
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Another tip is to look at projects Binance is incubating, it can give you some insights into upcoming narratives.
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Okay, so that's how you could have spotted and shared the Perp DEX narrative early but now let me put my money where my mouth is and show you how I use the events to predict an upcoming narrative that I think will be hot.
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◆ 3. Events ◆
Events have the power to make or break crypto narratives. The recent release of OpenAI sparked off huge AI crypto rallies (I missed it 🤷♀️). In late 2021, before I was big on Twitter, Zuckerberg renamed FB to Meta and I caught that rally 👇
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Events have the power to make or break crypto narratives. The recent release of OpenAI sparked off huge AI crypto rallies (I missed it 🤷♀️). In late 2021, before I was big on Twitter, Zuckerberg renamed FB to Meta and I caught that rally 👇
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The events above were unexpected, when these events occur ask yourself "what projects could pump when the herd starts buying".
But there are also events we know are coming in 2023, like regulation in the EU, and when you know something is coming you can prepare!
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But there are also events we know are coming in 2023, like regulation in the EU, and when you know something is coming you can prepare!
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Whatever your opinion is on regulation, it is happening. And you can either bury your head in the sand or look for projects that embrace regulation. I'm already looking at regulation-based projects and starting to invest heavily before regulation rocks the crypto market
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◆◆ Summary ◆◆
In the rapidly changing market that is crypto, you need to think several steps ahead. You need to predict where the herd moves before they move. If you can do that you will catch narratives early and print money.
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In the rapidly changing market that is crypto, you need to think several steps ahead. You need to predict where the herd moves before they move. If you can do that you will catch narratives early and print money.
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While thinking several steps ahead is vital, it is also subjective. In future threads, I will talk about how we can use game theory to model the interactions between players in this game so we can make more objective decisions. Objective decisions are better decisions!
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I hope you've found this thread helpful. Follow me @LadyofCrypto1 for more. Like/Retweet the first tweet below if you can and let me know by commenting below if you want more threads like this 👇
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