Before the bull market returns, here are some lessons I learned from spending millions in the crypto world.

As the year draws to a close, I've reflected on the mistakes I made over the past year and summarized them into several lessons learned.

I'm sharing this not only as a reminder to myself, but also in the hope that it will provide some reference for others.

The principles are actually very simple, but you can only understand them after you've suffered losses.

Just like the moment your position gets wiped out, you regret why you used such high leverage.

I. A speculator's paradise, an investor's graveyard

Hedge fund manager Hu Meng has a very precise definition of investment and speculation:

"If your returns depend on the price difference of the same commodity at different points in time, that's speculation. If they depend on the increase in intrinsic value and dividends, that's investing."

In the first few years after I got into the cryptocurrency world, I was a pure BTC holder and achieved pretty good results.

This strong positive feedback leads to a situation where, most of the time in the cryptocurrency world,

I was once looking for an investment in this market that I could "sleep soundly at night."

This is the sense of security brought about by so-called "value investing".

I look at the team, the white paper, and the fundamental data, trying to find stocks that I can hold for one or two years.

The so-called TVL, number of active wallet addresses, and transaction volume—these seemingly detailed data are the best sleeping pills I can use to fall asleep while holding assets.

But this is not much different from BSC meme players buying stocks and holding them until CZ or Heyi respond.

I fall asleep with data that might grow today but disappear tomorrow.

They went to sleep expecting the celebrity effect.

I am no more superior than them.

The reason for this is that the cryptocurrency market has never actually been about pricing based on fundamentals.

• In a bull market: sentiment pricing may account for 60%, share structure for 30%, while so-called "fundamentals" only account for 10%.
• In a bear market: sentiment-driven pricing accounts for 40%, shareholding structure accounts for 50%, and fundamentals still only account for 10%.

We are in a market that is over-efficient in behavioral finance, where the pendulum effect of emotions is very pronounced. In such a market, speculation is far more profitable than investing.

If that's all there is to it, then value investing in the cryptocurrency market is far from being a "graveyard."

The most frightening aspects of "value investing" are twofold:

1⃣When you deceive yourself and buy a certain coin from a value investing perspective.

If the price drops by 10%-20%, you'll comfort yourself by saying, "The market is stupid, everyone else is drunk but I'm sober, I'm not afraid of spot trading." You won't cut your losses, and you might even consider averaging down.

After a 50% drop, you vaguely realize you might be wrong, but because you've already lost so much, you're reluctant to cut your losses.

After it drops 90%, you quietly transfer the coin to a wallet you rarely use. The next time you see the coin has risen 100% in a group chat, you realize that it needs to rise tenfold again to break even.

2⃣ When your initial motivation was to speculate on cryptocurrency, and you subsequently switched to value investing after losing money:

"It's down 10%, but some are saying, 'This coin still seems salvageable; waiting for a big investor to buy in.'"

"It's down 20%, but I'm actually a value investor. At this price, holding onto my current holdings won't result in too much loss."

You know what happened next.

So how did the money disappear?

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

2. Go all in during foreplay, and stop abruptly at orgasm.

Regarding position management, GCR has one principle that has been overlooked by many, yet it is extremely important:

“In an altcoin cycle, you should maximize your risk exposure as soon as the trend reverses and gradually protect your capital over time.”

This is contrary to most people's intuition.

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

AI Agent Market Trends

At the beginning of the AI meme season around this time last year, I participated with small positions in GOAT, AI16Z, and other meme tokens. The returns were decent, but the absolute returns were mediocre. Then, with the advent of Swarms, my friends started making hundreds of thousands of USDT at a time, and I began to increase my betting size. That's when I started losing money like crazy. I think many people probably felt the same way; without Trump, their returns wouldn't even have kept pace with BTC.

At the beginning of the year, Trump saved too many people's lives. Originally, most people's fate was to be exposed after the AI agent tide receded. But Trump appeared out of nowhere just as the AI agent was beginning to decline, giving many people the opportunity to exit gracefully, switching from AI memes to Trump and completing their exit.

BSC Market Data

In September, having stopped scanning chains and largely stopped participating in memes, I happened to see CZ's tweet about 4 that afternoon. I bought several million worth of 4bnb and then left it alone, only to be met with the spectacular BSC rally. I belatedly realized I'd missed the opportunity to increase my position, and to make up for missing out on the early multipliers, I was forced to use the profits from 4bnb and the funds withdrawn to the chain to buy Binance Life.

In hindsight, if we had increased our risk exposure earlier, we would have been much more adept at handling whatever we did later. Even if we made a mistake, the losses wouldn't have been so significant.

Most of the time our instinctive reaction is:

• When a market is just starting to rise, the future is uncertain, so it's best to wait and see.
• When the market is booming and a consensus is established, one should invest heavily.

Because when a trend has just reversed, the market is still shrouded in the trauma of the previous bear market, and all the "stories" sound like scams. But at the peak of the market rally, the stories have become perfect, and consensus has reached its zenith.

However, from the perspective of the profit/loss ratio (Odds), the reality is quite the opposite:

• Trend emerging (reversal point): Although full of uncertainty, the odds are highest at this time and the downside is limited, making it worthwhile to place a heavy bet to try and win.
• Climax (Consensus Point): Although the market appears "stable" at this point, prices have already factored in future expectations, and the downside risk has increased dramatically. At this time, the appropriate course of action is to "stop short" rather than go all in.

III. Beware of PE and Buyback/Destruction Traps

All PE and cash flow valuation methods share a common premise: long-term sustainable performance.

But from the birth of Bitcoin until today, nothing other than Bitcoin has been sustainable.

The leading companies in all sectors have changed. If you look back at CoinMarketCap's Top 10 list from 5 years ago, you'll find that more than half of the names are now unfamiliar, or even nonexistent.

The leading player in the single-PERP track has changed from dydx and gmx to hyperliquid.

Countless other tracks have been proven false. Most projects have a lifespan of no more than a year.

PE valuation and buybacks/burns were the most challenging and painful investment experiences I've encountered. This is very similar to the "value investing" I discussed earlier.

When some projects are offered to you at 5x or even 3x the price, it's really hard to resist buying them.

Because I still harbor a little bit of wishful thinking, I can only say to be wary of PE traps, but I think many people can completely avoid falling into this trap.

As for me, I feel like I haven't lost enough money yet, and I still have some illusions about the industry, so I'll stick with it for another year.

at last

The lesson humanity learns from history is that it never truly learns from its mistakes, as clearly stated in 0xPickleCati's article a few days ago.

Some pain cannot be understood or distilled into an instinctive reaction unless experienced firsthand.