Finding Crypto Alpha: The Unwritten Rules of the Wild West

Author: Zoomer Oracle

Compiled by: Yangz, DeFi Path

Hey, everyone.

After asking you on Twitter if you wanted to see an article about how to find alpha in the crypto space, I was quite surprised by the engagement on that tweet. This is understandable, as the crypto space is a wild west, meaning you need to understand the unwritten rules of this jungle. Everyone has been working in this space for quite some time (before the 2020 bull market), but has made a lot of mistakes, including myself. It’s fine, as long as you learn and adapt, everyone in the crypto space (and in life) will get through this phase.

Don’t give up, just like most of the top buyers who cracked in 2017/2018.

At the beginning of this article, I will introduce some important red pills I’ve learned during my 5 years in the crypto space. In fact, there are many red pills, but I will only state some of the most important ones that come to my mind. It’s important to clarify that everything I say is just my personal thoughts and philosophy. There is no proper blueprint in the crypto space, but I am willing to share my blueprint for educational purposes.

Then, I will show you what tools and methods I use to find my crypto information.

In short, there’s a lot to talk about. My coffee is ready. Let’s get started.

Red Pill #1: Not All of Us Will Succeed

As someone who entered the crypto space in April 2017, I learned that, essentially, you are competing with others who have the same goal: making money. While it sounds cliché, it’s still an important factor to keep in mind, as you will realize you need to stay a step ahead of the market.

So, who is the market? It’s retail investors (like you and me) and venture capital firms (and other institutions). Trust me: if you use the right tools and resources, you can beat most venture capitalists.

This is essentially a chess game, and some big players like DefiGod and Tetranode realized this early on and have been quite successful as individuals. It’s a game in itself, and you need to learn and adapt from your mistakes. Upgrade your weapons (the tools you use), analyze what’s happening, predict narratives, and shed biases.

Although it sounds harsh, the idea that "we will all succeed" is an illusion. You can only succeed when you analyze every step you take, and more importantly: analyze the steps of market participants.

Red Pill #2: Understand Risk and Reward

Essentially, we are all speculating. This means we are making bets. The only difference between a casino and cryptocurrency is that you can actually make calculated bets. When you research a project, you need to have your own checklist in mind.

Internal Questions about the Project:

• What problem are they trying to solve?
• Is it unique, or just another copycat?
• Who is backing it?
• Which venture capitalists/angel investors have invested in it?
• How is the tokenomics?
• What products do they already have?

External Questions about the Project:

• Does it align with new narratives?
• What is the market cap?
• What is the TVL (Total Value Locked)?
• How is the liquidity?
• Talk to the developers/founders: do they know their stuff?
• Have they already had a pump and dump phase in the charts (the birth and creation of bagholders)?

You can ask yourself more questions while researching, but these are the ones that come to my mind. All these questions will ultimately lead you to have a positive, skeptical, or negative view of a project. When I have doubts, I usually compare external questions with internal ones. When you put them together, you will realize whether it’s worth taking the risk for the reward.

Example:

Project A solves some unique problems. "A decentralized exchange (DEX)/decentralized stablecoin protocol that compensates for IL using minting fees, making Project A's stablecoin minting free from impermanent loss."

Of course, I just made something up. I don’t know if this is realistic, nor do I know if these numbers are skewed (they probably are), but it’s just to give you something to think about. Although "Dex" and "decentralized stablecoin" are not unique in themselves, the concept of eliminating IL by combining existing solutions can be considered unique.

Market cap of 10 million, circulating supply of 5 million, and total supply of 50 million. 40 million tokens are locked for at least 6 months. Due to the reward mechanism, the inflation will be the unlocking of 5 million tokens. This means the circulating supply after 6 months = 10 million. In this example, that means a market cap of 20 million.

Because it has the backing of big players, you can see the numbers rising significantly, even though seed investors entered below a market cap of 500,000. The tokens are locked, and if you want to trade this project, you need to exit before the tokens unlock. If the chart doesn’t show a "pump n dump," then you can bet it will eventually happen.

Red Pill #3: If You Are Actively Engaged in Crypto Full-Time, the Investor Mindset is Usually Bullshit

People love to describe themselves with two terms: "trader" and "investor." If you are reading this article and you want to be active in the crypto space and make money, don’t call yourself an investor. Most people here are not investors, including myself. Why?

It’s simple: most coins have a pump and dump cycle. In fact, every coin does.

Before you say, "Haha, he’s so stupid, look at Bitcoin, it’s been pumping for 12 years, hehe XD," let me elaborate.

Yes, there are some projects that have continuously repeated pump and dump cycles over the years (long-term). Good examples are obviously Bitcoin and Ethereum. But how many projects actually returned to their previous ATH and went higher between 2012 and 2016-2018? Coins like OMG, Waltonchain, Vechain, Verge, and all the other garbage hypecoins have not returned to ATH since 2017. Unfortunately, I don’t have exact numbers, but I can tell you that this is at least over 95%. Try looking at the numbers on the 2017 Coinmarketcap screenshots and compare them with the numbers from now in 2022; this will be a great eye-opener for some of you.

It’s clear that some projects will succeed long-term. What I want to say is that your chances of hitting the next "Google" in the crypto space are extremely low. Especially if you are a newcomer or have little experience, it’s hard to distinguish garbage from good projects because you haven’t built a reference framework yet.

Most OGs who survived the 2017 bear market will recognize this.

Most people are just traders competing with others, plain and simple. Unless you are a baby boomer with a family and a full-time job who enters Bitcoin/Ethereum without looking at prices weekly/monthly: then yes, you are certainly an investor.

It’s important to recognize this because you will have to build a mindset that requires you to remain objective and vigilant when prices rise. Similarly, if the chart shows a pump (and you know you are a trader), you will at least sell a significant portion to lock in profits. As for how much you sell, that’s a blueprint you have to create for yourself.

If you have a "HODL" mindset but are not a true investor, you will pay for it. If you think your shitcoin is the next "Bitcoin/Ethereum," you will also pay for it.

Let me emphasize again, your odds are not great. And the rules are not set by me.

Admitting you know nothing (as opposed to thinking you are the next Warren Buffett/Michael Burry) will save you money. It’s that simple.

Crypto Tools: How to Stay a Step Ahead in the Market

1. Telegram/Discord

These are the most obvious tools. Building your network in the crypto space is crucial. Since I entered this field in 2017, what I’ve learned is that you need to provide value to receive value from others. So if you are just taking, trust me, people will not share anything with you. We all have the same goal, so in this regard, people will recognize who provides value and who just wants to extract benefits from others.

Whether you are in the crypto industry or not: everyone hates takers. In a wild west and unregulated jungle, having a network you can rely on and trust is very important.

You can join many crypto community groups on Telegram/Discord. However, most public groups are nonsense, and I recommend joining smaller groups with high IQ. Of course, joining these groups is not easy; you are usually invited to these small groups (alpha) when you have a proven track record of providing value. Sharpen your sword enough to make a name for yourself in the community.

2. Twitter

Crypto Twitter is a strange place. It’s almost at the level of 4chan/biz. Back in 2017, I loved 4chan because it was an obscure forum where a bunch of basement-dwelling autists were sharing high-IQ information about coins (see Chainlink, the best-performing token during the 2018-2020 bear market). The problem is that the forum has been flooded with nobodies/bots/paid shills, ruining the quality of content. Since 2020, I’ve almost stopped scrolling through 4chan for alpha; if you can’t distinguish paid scammers from genuine high-IQ posts, I suggest you don’t do it.

Twitter has a similar vibe but is a bit different because you can create a custom crypto account list to follow those who genuinely provide high-IQ content. Once you manage to build a list of "alpha accounts," you can leverage Twitter to get information early.

A significant downside of not having a proper list is that Twitter is an echo chamber. If you keep following and liking the same coins, you will only see garbage that aligns with your own preferences. You don’t want that, and you will unconsciously confirm your preference bias every time. That’s how the algorithm works, as it was initially designed to simply brainwash people into thinking their beliefs are always correct (see examples of right/left-wing politics).

3. Nansen/Etherscan

Wallet "autism" (the author likely means those who specifically track and research wallets) is real, specifically tracking Smart Money wallets. Sometimes you will find wallets that entered 100x type projects early, and it’s always the same. Making an Excel sheet of these wallets and tracking them is a great way to keep up with real early alpha. This method has a few subtle differences:

• You can use Nansen to create a dashboard and see what Smart Money is doing through various wallet tracking methods, tracking the actions of those whales, and even tracking what venture capital firms are doing. You can click on a token and see an information-rich analysis page (big transfers, big sells, big buys, etc.). They even have a bot notification system that alerts you.

For me, purchasing a yearly subscription is worth it because I know the value I get from monitoring this dashboard far exceeds the cost. But I know not everyone can afford it, so fortunately, there’s another way:

• Using Etherscan will be your method for tracking wallets. This is a more tedious job because you need to manually track everything, but it’s completely free and only requires "determination." If you are tech-savvy, you can even build a bot to notify you when large wallets move funds.

Using Excel to monitor specific addresses has been my way of working in the past (and still is).

4. Follow Developers and Smart Money Accounts

This can be seen as a focus on the social media part I wrote earlier.

But it’s a very important and underrated part.

What I like to do is follow those deep-in-the-field developer accounts on their social media. Usually, due to their good relationships, they get seed/angel investor positions in promising projects early on. Typically, they also follow the social media of these projects on Twitter or Github. They are always following the social media of very early projects, really early (obviously as seed investors), so if you can track who they are following and their new follows, you can immediately see what’s happening on the radar. Again, this requires determination and dedication, as you need to check daily. Twitter and Github are perfect choices for this.

Since I really like this method, I won’t disclose the account names I follow for this method. I just gave you a huge seed, and now it’s up to you to plant it well and let it grow.

5. Keep Up with the Narratives

Narratives, narratives, narratives… If you keep repeating these words, you will eventually laugh. What is the narrative in crypto? Who is creating them? Why are they so important?

I still don’t know how to look at this issue. I know it was a thing in 2020-2021, but at the same time, we had the same thing with ICOs in 2017 (remember AI-driven blockchain 3.0, DAG?).

How do we track it?

I like to keep up with my TG groups, Discord, and CT. But some information-heavy "newspaper" type social sites are indeed good for this. I like @TheDailyApe on TG to get an overview of DeFi. Newsletters from Messari and Delphi Digital (paid or even free) are also great for reading about what’s happening in this space. However, the downside of these newsletters is that you usually arrive late because most of the market already knows by the time it’s published on their site.

Predicting narratives requires a good network you’ve built over the years and analyzing how narratives shift (and work). If you are a newcomer, you will fail, and that’s normal. Give it some time, and you will recognize the patterns in the market.

What’s Next?

There are many more methods and tools to leverage. But for now, I believe I’ve shared the most important ones. Of course, I will likely write a Part 2 in the future.

As I conclude this article, I want to return to a previous statement:

Not all of us will succeed.

I still stand by this statement. But at the same time, during the writing of this article, I realized that my life has changed because of crypto. Over the years, I’ve met degens like myself. We help each other. Indirectly, your life may also change because of some anonymous individuals living on the other side of the world.

Some people never came back after 2017. And some stayed and saw hope in the next cycle.

Yes, in a sense, we will all succeed (WAGMI).