$1k to $10k crypto problem week#7: We’re successful! | by The Wolf of Pockets Road | Coinmonks | Oct, 2022

Hey everybody,

After what felt like ages, we lastly acquired a inexperienced week.

The crypto markets pumped closely on Tuesday and Wednesday and we’re now over the $1000 mark and sitting on some good positive aspects.

So what fueled this sudden, surprising pump?

It was principally as a consequence of a brief squeeze. Bears shorted the crypto market too aggressively and when issues didn’t go as anticipated (the road went up as an alternative of down), they rushed to cowl their positions, pushing the costs even larger.

Different combos have been at play as nicely; Reddit NFTs went parabolic, Elon purchased Twitter, and, don’t neglect, October has traditionally been a great month for crypto.

Because the markets are stuffed with greed and optimism once more, it’s good to stay life like. It was not more than per week in the past after we have been speaking about how f-cked up the worldwide economic system is and the way unlikely it’s to get right into a bull market quickly.

Nothing has modified since then aside from market sentiment. The crypto market is notoriously identified to have the reminiscence of a gold fish and the eye span of a 2 yr previous youngster. Don’t get carried away.

When it comes to macro, which is what primarily drives the market at the moment we didn’t have any significantly optimistic information. Core PCE was launched immediately (which is the FED’s favourite inflation metric) and it got here out simply as anticipated; inflation nonetheless seems sturdy however not stronger than we thought.

Nonetheless, there are nonetheless some bullish situations to think about.

Initially, there’s at all times the potential of decoupling, which implies that crypto will cease following conventional markets and be much less reactive to the FED’s resolution. Extremely unlikely for my part.

Secondly, there’s the situation that the place the FED pivots within the brief time period so as to unfold positivity within the economic system earlier than the upcoming elections within the US. This might set off a short-term bull rally, however would make issues worst long-term.

Despite the fact that it appears irrational, don’t be stunned if one thing like that occurs. So long as cash and state are linked, politics will management the economic system.

Thirdly, some individuals declare that the collapse of the worldwide economic system has already been priced in, we reached the underside and we’re simply going to remain right here or transfer upwards very slowly. I’m not a giant fan of this concept; threat markets (particularly crypto) are likely to react quickly so I discover it laborious to consider that unfavourable information received’t set off additional drops.

So what do I believe?

I consider that this was only a aid rally. Crypto is risky and it was sure that we’d see a sudden bounce within the brief time period sooner or later.

However as I mentioned earlier than, nothing has modified since final week. I predicted the bear market extending to not less than the primary months of 2023 as a result of there have been important issues with the economic system. This issues haven’t out of the blue gone away as a result of DOGE pumped 20%.

So, within the brief time period, I don’t see the market pumping a lot additional.

In reality, I consider {that a} return to the earlier ranges is extra possible than one other rally. Except the FED declares a shocking pivot on Wednesday (which might notice situation #2), I see us cooling off not less than till the subsequent CPI report.

Tether signify liquidation on the ETH lengthy future. DAI represents the pre-Merge Ethereum put

From -6.5% final week to +9.3% now, that’s the fantastic thing about catching a rally whereas going full degenerate. Whereas +93$ isn’t that spectacular, given the present circumstances, I’ve to say that I’m fairly proud of myself.

I’ve spent numerous hours doing analysis the previous couple of months and I really feel like this has given me an edge. This edge is small proper now, however might be huge within the subsequent bull market. The Optimism play is a superb instance of that.

About 3 weeks in the past I bought my Cardano at a loss and acquired $100 of Optimism. I believed (and nonetheless do) that Ethereum L2s will massively outperform different L1s sooner or later. Not even a month later Cardano is at $0.40 (whereas I bought at $0.43) and Optimism is at $1.12 (whereas purchased at $0.86).

Polygon and Ethereum, my highest conviction picks for the reason that starting of this problem are additionally main the market. Regardless of how a lot they fall within the brief time period, they’re assured to finally win.

So I preserve my MATIC staked, incomes that candy 13.9% APY on Binance and preserve holding my Ether tight.

Premia can be pumping together with the remainder of the market however, as anticipated, in a extra risky means. It’s now within the inexperienced total.

BNB and ATOM, the opposite 2 excessive conviction picks, have loved pumps of their very own though not as dramatic because the Ethereum cash. ATOM stays staked on Binance for ~30% APY.

XMON and X2Y2 stay principally on the similar ranges which is an effective factor (bear in mind I would like the primary one for the SUDO airdrop and the second for producing yield).

And ThorChain stays the larger loss share smart. Nonetheless a really essential and undervalued protocol although.

Contemplating that I don’t anticipate the market to proceed pumping this week, it’s smart to cowl my positions with Choices or Futures.

Initially I used to be considering of one other Ethereum put however finally determined in opposition to it.

Ethereum stays probably the most strong decide in the entire crypto area and the up to date tokenomics may begin to have an effect on the worth positively any further.

Ethereum has been deflating for the reason that Merge and we haven’t actually seen the outcomes from the diminished promoting strain. I wouldn’t be stunned if ETH turns into the token that holds higher than every little thing else throughout a meltdown.

So if I’m not shorting ETH what am I going to brief?

I used to be making an attempt to resolve between Cosmos, Optimism and Polygon.

So right here’s how I considered it:

  • The ATOM 2.0 whitepaper appears to have some weaknesses which can be at the moment mentioned contained in the Cosmos neighborhood. Seems the proposal wasn’t as genius as I made it out to be. Nonetheless ATOM turns to behave a bit bizarre price-wise.
  • Polygon and Optimism normally fall considerably when the market dumps.
  • The remainder of the the tokens are a smaller a part of my portfolio (and a few of them are usually not even obtainable for futures buying and selling).

So after enthusiastic about it for some time, I made a decision to go together with Optimism who has completed a +58% this week. In my view this makes it extra prone to cool off and fall again to extra rational ranges.

Nonetheless, OP has a decrease cap than MATIC, which makes it extra unpredictable.

My plan to brief Optimism at $1.15 with a 12x Margin on Binance, placing $30 as a collateral.

This meant that I’d be capable of brief $360 of OP, but when the worth ever raised above $1.24 (+8.33%), I’d get liquidated and lose my $30 collateral.

One other mistake

However then I noticed I used to be an fool and as an alternative of $30 as collateral I put $30 on the OP quantity. So I primarily wager about $2.5. After I checked my place about half an hour after making this transfer, OP was at $1.12 and I used to be already up about 25% which suggests I made a staggering $0.63. Good job, might have made $70 in lower than an hour however I in some way managed to f-ck it up once more.

So I made a decision to brief Polygon as an alternative. Identical phrases as the unique Optimism plan (higher threat/reward now), $30 collateral with 12x margin. Entry worth at $0.939, liquidation worth at $1.

In complete I spent $30 betting that the hype rally will cool off.

Nonetheless, I believe that this play places me in a win-win state of affairs.

If the crypto market continues to rally subsequent week, I could get liquidated and lose $30, however the 2 consecutive inexperienced weeks might be a gamechanger for market sentiment and finally trigger means larger earnings.

Anyway, I’m getting too technical with the financials and it may be tiring. Let’s transfer into what I realized via my analysis this week and doable alternatives.

The L2 thesis

After diving deep into the Layer 2 sector by understanding the expertise of rollups and interacting with widespread L2 ecosystems, I’m now extra bullish than ever. I’ll make a full publish about them within the subsequent few days however as a abstract:

  • L2s will outperform different L1s in time period
  • L2s might be extra worthwhile and helpful than different L1s
  • Optimism is a superb challenge whose token doesn’t have a lot utility in the mean time
  • L2s have respectable enterprise fashions that may generate income
  • Arbitrum is a bit superior to Optimism from an investing standpoint for my part (that’s why it is very important get the airdrop)
  • ZK-rollup initiatives might be among the many most useful tokens in crypto within the subsequent 2–3 years

Actual-yield protocols

Since I anticipate the bear market to final for the subsequent a number of months (not less than), it is smart to get into initiatives that generate yield via sharing their income. X2Y2 is an effective play however there are additionally different alternatives.

DeFi perpetual protocols like GMX and GNS are some good examples, though their tokens have already pumped considerably in the previous couple of months.

Decentralized Social Media

This can be a crypto sector that I’m significantly curious about and I’ll in all probability do a deep dive within the upcoming weeks. For now, the one challenge that appears to be promising from a token investing standpoint, appears to be DeSo.

The protocol I’m principally curious about nonetheless, though it doesn’t have a token, is Lens.

Exploring ecosystems

This week, I spent a major period of time experimenting with completely different crypto ecosystems. I performed round in Optimism, Arbitrum, Cosmos, and Cardano. I’ll dedicate full posts on these however my foremost takeaways have been these:

  • The Optimism ecosystem is generally dominated by the initiatives that dominate the Ethereum ecosystem
  • Arbitrum has a number of ETH initiatives as nicely however there are additionally some unique ones (GMX)
  • Cosmos is a really deep ecosystem that wants a number of analysis
  • Cardano has the very best expertise out of all of the blockchains however its ecosystem is missing innovation and its dapps look/really feel bizarre

Shorting token unlocks

I primarily have my eyes on the IMX token unlock which is subsequent week and the dYdX token unlock which is in just a few months however will trigger a large provide shock.

IMX has huge token unlocks subsequent Saturday

Each of those is perhaps good shorting performs that may make me a fast buck.

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