Hey Degen Frens,
You know why new poker players lose so often? They play too many hands. They're always itchy for some action.
Sometimes the best move is to do nothing and wait.
That's how I think about the market right now.
We’re in a dip right now.
This isn't the best environment for me to highlight any high risk plays.
Instead, this is an opportunity to build your fundamentals. Let's set you up to be in a stronger position for the next bull cycle.
Here's what I'm sharing today:
- Profit Taking Systems. I share different formulas that I use to take profits.
- My Favorite Tools in DeFi. These tools will save you time and help you find your own alpha.
Guide: How to Take Profits
In the 2018 Crypto Winter, I saw my portfolio go from 7 figures down to low six figures.
That's when I realized that all my "profits" were fugazi (imaginary).
I got greedy and didn't know how to take profits.
Well, I learned my lesson. Even though we're in a dip, my portfolio's still doing well.
You know why? Because I took profits throughout 2021.
Why You Should Take Profits:
- The market works in cycles. What goes up, must come down. You want to make sure you’re left with something if we enter a long bear market.
- All the gains that you see are “paper” gains. Taking profits is like putting gold bars into your bank.
- Portfolio Balancing. I don’t like having more than 15% of a coin in my portfolio. Sometimes a degen coin will skyrocket. Taking profits lets me maintain balance.
- The Regret of Taking Profits. I’ve seen some people regret taking profits. Maybe they took profits on Ethereum when it was $500. It's MUCH more painful to NOT take profits and watch the coin potentially go down 90%. Also be careful of "hindsight bias"
- It's good risk management. I know you're confident about your latest degen coin, but there are always unknown risks. (Like the anonymous co-founder of a project secretly being a criminal). Taking profits means you have something if a black swan happens.
Taking profits is more important than ever in Crypto because narratives change all the time.
And taking profits isn't so bad. If you have stable coins, you can farm them for extra yield.
These stable-coins are your "ammo" when it's time to buy the dip.
So, How Do You Take Profits?
The best traders in the world have developed systems. It protects you from your own emotions.
I'm going to share 3 profit-taking formulas with you today.
Which one should you use?
Dude, I don't know you or your portfolio!
A few things you should consider:
Your risk tolerance. How conservative or aggressive are you? If you're new to Crypto then I advise you to be as conservative as possible.
What stage of a market we’re in. If I feel that a bear market’s coming soon, I might go for option #1 and play it safer.
How much conviction you have in a coin. If you have a high conviction, you might go with Option 3.
1. What if my investment never doubles?
It depends what stage of the market we're in.
You either have to be more patient, or you chose a bad investment and should cut your losses.
2. What about taxes? If I sell then I get taxed more than if I held for over a year.
I’m not an accountant and everyone’s in a different jurisdiction.
IMO, it’s better to take profits and pay taxes, than to hold on to a coin and watch it go to $0.
3. Do you ever cash to fiat?
No, I don’t.
I already do well financially so I don’t need the cash. I believe BTC / ETH IS the profit. I’m preparing for a world where Cryptocurrency becomes more adopted.
I get it though. You might have debts to pay off and other expenses to cover.
One option could be to use your BTC / ETH as collateral.
Let’s say you have $25,000 worth of ETH and you need cash.
- Use Aave and put your ETH as collateral (Note: each chain has its own borrow / lending such as Benqi for Avalanche)
- 30% value into a stablecoin like USDC. That’s $10,000 worth.
- Transfer the stablecoin into your favorite CEX.
- Cash out that USD.
You have the cash you need without losing exposure to Crypto.
Keep in mind that you will eventually have to pay it off. But you’re banking on your collateral becoming more valuable overtime.
Also, be smart about how much LTV you borrow. I recommend keeping it small around 20%.
Just because Aave allows you to borrow up to 80% doesn't mean that you should.
4. So you take profits after 2x. What about AFTER that?
There are so many options. You can let it ride forever. Pull profits once it 2x or 3x again. Or exit the position completely.
This is where is becomes more art than science.
I don't have a set formula because so much of it revolves around narratives and the meta game.
Imagine that it's 6 months later. That coin might no longer be "hot" anymore and I'll exit my position completely.
Or the high risk coin is gaining massive support and adoption. It goes from being high risk to potentially a blue chip!
5. What do you consider a bluechip?
These are my solid, long term investments. Think of them like the Apples, Microsofts, and Intel.
We don't know what Crypto's going to be like in the next 5 years, but you can be certain that these protocols will stick around.
For most people, keep it simple with BTC / ETH as your bluechips.
I consider coins like BTC, ETH, Terra, and AVAX to be bluechips.
My personal criteria:
1. Established over a year
2. Currently a Top 20 market cap
3. I predict higher marketcap and growth over the next five years.
Feel free to play with the rules. I consider Curve finance a bluechip even though it's not in the top 20 market-cap.
The Best Tools in DeFi
I created a list of all the tools that I use in DeFi.
Some real alpha in here. Go check it out.
The right DeFi tools can help you find alpha and save you hours each week. Here's a collection of the best FREE tools in DeFi: (Some of which you've never heard of before) 🧵
February 2nd 2022
Tweets of the Week
A few tweets that I think you'll enjoy
“What profits” If you’re not in profit then you’re not good at losing. Being good at losing means cutting bad trades quickly. Instead you’re holding onto bad trades and not able to position yourself into better ones from a position of strength Otherwise small losers turn big
February 1st 2022
One of the hardest things to do is cutting your losses. There's sunk cost bias. And cutting your losses also means admitting that you were wrong.
I'm not into NFT's. But it's nice that artists have the opportunity to make some life changing money through them.
Globalization 2.0: The poor in rich countries transfer wealth to the rich in poor countries. Globalization 3.0: The digital-illiterate transfer wealth to the digital-native in both rich and poor countries.
January 28th 2022
What a brilliant tweet. My fren, you are on the cutting edge.
Systems over Emotions Examples: • Take 40% profit when degen coin 2x • Buy ETH /w fiat on the 1st of every month • No coin can be >15% of my portfolio • Degen coins max 5% • Must wait 3 days before purchasing a coin. Stops FOMO Do you have any systems you use?
February 1st 2022
Man, I don't want to shill my own tweets but this was a good one. I have a ton of rules that I've created to become a better investor and trader. You have to think of yourself like a machine.
Think on This
What's your decision-making process when you want to make an investment?
If you don't have one, then you need to create one asap.