As the year ends, I'm reviewing the mistakes I made over the past year and summarizing them into a few key insights.
Sharing these is both a reminder to myself and a reference for others.
The principles are actually quite simple, but you only truly understand them after losing money.
It's like the moment your position gets liquidated, you regret why you used high leverage.
1. A Paradise for Speculators, a Graveyard for Investors
Hedge fund manager Hu Meng has a very precise definition of investment and speculation:
"If your return depends on the price difference of the same commodity at different times, that's speculation. If it depends on intrinsic value growth and dividends, that's investment."
In my first few years in the crypto world, I was a pure BTC holder and achieved decent results.
Such strong positive feedback led me to spend most of my time in crypto seeking a form of "investment I could sleep peacefully with."
This was the sense of security brought by so-called "value investment."
I looked at teams, whitepapers, and fundamental data, trying to find assets I could hold for one or two years.
Metrics like TVL, active wallet addresses, and trading volume—seemingly solid data—were the best sleeping pills for holding assets.
But this wasn't much different from BSC meme players buying assets and holding them, waiting for CZ or He Yi to respond.
I slept with data that might grow but could also go to zero tomorrow.
They slept with expectations of celebrity influence.
I wasn't any better than them.
The reason is, 【the crypto market has never been priced based on fundamentals】
- In a bull market: Emotional pricing might account for 60%, tokenomics for 30%, and so-called "fundamentals" only 10%.
- In a bear market: Emotional pricing accounts for 40%, tokenomics for 50%, and fundamentals still only 10%.
We are in a market where behavioral finance is overly effective, and the pendulum of emotions is very obvious. In such a market, speculation is far easier to profit from than investment.
If that were all, crypto value investing wouldn't quite be a "graveyard."
The most terrifying aspects of "value investing" are two-fold:
1⃣ When you deceive yourself into buying a coin from a value investment perspective:
A 10%-20% drop: You comfort yourself, "The market is stupid, everyone is drunk but I'm sober, spot holdings are safe." You don't cut losses; you might even want to average down.
A 50% drop: You vaguely realize you might be wrong, but since you've already lost so much, you can't bear to cut losses.
A 90% drop: You silently transfer the coin to an unused wallet. The next time you see the coin pump 100% in a group chat, you realize it needs to go up tenfold just to break even.
2⃣ When your initial motive was speculation, but you turn to value investing after a loss:
A 10% drop: "This coin might still have hope, waiting for a big buyer."
A 20% drop: "I'm actually value investing; holding at this price won't lose too much more."
You know the rest of the story.
So how does the money disappear?
I actually read about this principle a long time ago, but I only truly understood it a bit after going through GMX, DYDX, JUP, MET, PUMP, CLANKER, and BONK.
2. Go All-In During the Foreplay, Practice 'Inch Stopping' at the Climax
Regarding position management, GCR had a principle that many overlooked but is extremely important:
"In the altcoin cycle, you should maximize risk exposure when the trend just reverses and gradually protect capital over time."
This is counterintuitive to most people.
I've made this mistake countless times over the past two years.
The AI Agent Trend
At the beginning of last year's AI meme season, I participated with small positions in goat, ai16z, and some other meme tokens. The multiples were good, but the absolute returns were mediocre. Then, by the time swarms came around, friends around me started making hundreds of thousands of U.S. dollars at a time. I began increasing my bet sizes. Then I started losing疯狂ly. I think many people are like me; if it weren't for TRUMP later on, the returns might not even have beaten BTC.
TRUMP at the beginning of the year saved too many people. The fate of most was to be exposed after the AI agent trend receded. But TRUMP emerged just as AI agents started to fall, allowing many to retreat swiftly, switching from AI memes to Trump to exit.
The BSC Trend
In September, I, who basically no longer scanned chains or played memes, happened to see CZ's tweet about '4' that afternoon. I bought 4 BNB for a few hundred dollars and didn't pay attention. What followed was the spectacular BSC行情. I belatedly missed the chance to increase my position early. To make up for missing the early multiples, I was forced to use the profits from '4' and funds transferred on-chain to buy into the 'Binance Life' narrative.
Reflecting afterward, if I had increased risk exposure early on, I would have been much more comfortable later, no matter what happened. Even if wrong, the losses wouldn't have been huge.
Most of the time, our instinctive reaction is:
- When the trend just starts, the future is uncertain, so we should wait and see;
- When the trend is hot, consensus is established, so we should go heavy.
Because when the trend first reverses, the market is still shrouded in the trauma of the last bear market, and all "stories" sound like scams. At the climax of the trend, the story becomes perfect, and consensus peaks.
But from a risk-reward (Odds) perspective, the opposite is true:
- Early trend emergence (reversal point): Although full of uncertainty, the odds are highest here. Downside is limited, making it worth placing heavy bets to seek returns.
- Climax phase (consensus point): Although it looks "stable," the price has already priced in future expectations. Downside risk increases dramatically. At this point, one should practice "inch stopping" (withdrawing/ taking profit), not go All-in.
3. Beware of the PE and Buyback & Burn Trap
All PE and cash flow valuation methods have a major premise: that performance is sustainable in the long term.
But from the birth of BTC until today, aside from BTC, nothing has really been sustainable.
The leaders of all sectors have changed. If you look at the Top 10 list on CoinMarketCap from 5 years ago, you'll find more than half the names are now unfamiliar or even zeroed out.
The PERP sector leader alone has changed from dydx, to gmx, to hyperliquid.
Countless sectors have been disproven. Most projects don't last more than a year.
PE valuation and buyback & burn have been the most painful investment experiences for me, where I've stepped into the most traps. This is very similar to the "value investment" discussed earlier.
When some projects are presented to you at 5x or even 3x PE, it's really hard to resist buying.
Because I still hold onto that little幻想 (fantasy), I can only say beware of the PE trap, but I think many people can completely avoid this trap.
As for me, I feel I haven't lost enough money yet and still have some幻想 about the industry. I'll persist for another year.
Finally
The lesson humanity learns from history is that we never learn from lessons. As 0xPickleCati's article a few days ago made very clear.
Some pains, if not experienced personally, cannot be understood and distilled into instinctive reactions.
