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MAR 3, 2024

Feature: How three young people got huge crypto wealth and huge losses

by 吴说猫弟, WuBlockchain

This article is quite lengthy, translated from Chinese to English by GPT. The general meaning is largely accurate, though there may be some textual errors.
This episode's host is Colin, the founder of Wublockchain, with guests including Wublockchain analyst Xiao Liu @defioasis, a former BitMEX analyst; Wublockchain's English podcast host Shang @lasertheend; and chain analyst and Wublockchain consultant "Chart Maker Xiao Guo" @sankin_eth. The three guests shared how they earned their first "bucket of gold" in the cryptocurrency world, how they then encountered their first major setback, and their views on the current market conditions as well as their current strategies.
Note: The content of this episode is purely personal experience and does not constitute any financial advice. Individual investment activities are not related to the stance or work of Wublockchain Media. The cryptocurrency market is highly volatile; please do not participate recklessly and strictly comply with the laws and regulations of your location.
For the full content, please listen to:
Xiaoyu Universe:
Colin: How did you get into the cryptocurrency world? How did you earn your first "bucket of gold"?
Shang: I first encountered Bitcoin in 2018, with a background in finance. Initially, I thought entering Wall Street was really cool. However, during my junior and senior years of college, I realized the industry was highly competitive, making it difficult for newcomers without a strong background to break into the inner circles. It was around this time that I discovered the realm of Bitcoin. I began purchasing Bitcoin with some of my own funds, and from 2018 to 2020 and 2021, as the market remained bearish, I didn't sell any Bitcoin but instead focused on learning and observing.
In 2021, while pursuing my graduate studies, I came across the concept of decentralized finance (DeFi). I noticed that this field was completely different from the early narratives and gameplay of Bitcoin, involving new elements such as smart contracts and liquidity pools, starkly different from traditional currencies. That same year, I was fortunate to have invested a relatively large position in Solana (SOL) when its price was low. Additionally, I contributed several articles and eventually moved to Singapore to work full-time in the cryptocurrency industry for two years.
During this process, I experienced both fortune and misfortune, as some of the projects I invested in eventually went to zero, such as Solana rising from one dollar to two hundred dollars before falling back to thirty dollars, Luna going from five dollars to one or two hundred dollars before going to zero, as well as projects like Stepn and FTX. Now, I am focusing more on exploring airdrop opportunities.
Xiao Guo: I started learning about Bitcoin around 2017, just a year or two into my career. Working in Fuzhou, the capital city of Fujian, I realized it would be difficult to buy property locally with my salary at the time, so I began considering investments for additional income. Due to my internet-related job, I was relatively easily exposed to information on Bitcoin or blockchain technology more broadly. I remember clearly deciding to register for a Huobi account on September 1, 2017, when Huobi was still accessible in China. However, the registration process required KYC verification, including providing ID information and a selfie, which made me wonder why such personal information was needed for an unfamiliar platform, so I didn't complete the registration.
Three days later, on September 4, the government released policies targeting cryptocurrencies. At that time, I thought it was good that I hadn't invested, as Bitcoin seemed to be suppressed and might disappear. But by December, I came across news on Bitcoin and noticed its price had nearly tenfold increased since September 4. Attracted by the potential for wealth growth, I began registering with other exchanges and participated in then-popular projects like EOS, officially joining the cryptocurrency world.
As for the so-called "first bucket of gold," I don't have this concept, as over the years I've been earning money through various jobs and continuously investing in the cryptocurrency circle. Whether investing or spending, I haven't experienced significant wealth growth, or to say, I haven't felt the impact of a one-time large investment yet.
Xiao Liu: I came across cryptocurrencies around March 12, 2020. Due to the pandemic, I had nothing to do at home and initially wanted to explore shorting gold but found it complicated to operate domestically. While browsing the web, I stumbled upon Bitcoin. Entering the cryptocurrency world, I was shocked by the market crash on March 12 that year. For the rest of 2020, I primarily engaged in contract trading, initially on the Bitget platform, experiencing brief high returns, such as a 17-fold increase in two days, but then lost it back, entering a state of chaos until the end of the year.
After joining Wublockchain, I began to research projects. On Christmas Day, December 25, 2020, I carefully considered my future investments. Given the popularity of the DeFi sector at the time, I decided to invest in on-chain DEXes, seeing it as a huge opportunity. After deep thought that night, I purchased Uni at 3 AM, investing all my funds—about 5,000 yuan. Soon, this investment doubled, growing tenfold in two months, which surprised me. By the end of February 2021, my investment had increased tenfold, and I chose to sell.
Then, I invested in Filecoin (FIL), also gaining tenfold returns. Through these two investments, my assets quickly grew to 500,000 yuan. However, after some setbacks, I started trying diversified investments but found the losses even more severe. My assets retreated from 500,000 yuan to over 300,000 yuan. In the second half of 2021, Axie Infinity sparked a craze for blockchain games, and I decided to invest in a gaming platform, Mobox, putting all my remaining funds into it. This investment also yielded a tenfold return, bringing my assets to over 3 million yuan at one point.
However, due to my subsequent investment mindset, I suffered significant setbacks. In 2022, I lost several hundred thousand yuan after failing to replicate the success with various clones of Stepn during the bear market, as I did not change my heavy investment strategy, leading to greater losses. It wasn't until the end of 2022 that I began adjusting my investment strategy. Entering 2023, I kept a low profile, but the market's continued downturn led to further retreats. By the second half of 2023, I refocused on the Ordinals project, believing it might represent a new starting point in the Bitcoin ecosystem. I started regularly investing in Ordinals from June or July, achieving over tenfold returns to date, recovering some losses, though still a distance from the previous peak.
Colin: Xiao Guo, there are rumors that you've made quite a profit recently with this inscription.
Xiao Guo: I think it's okay, actually. When everyone looks at the story of inscriptions, those hundredfold, thousandfold tales, it seems exaggerated. But if you're relatively deep into this community, you'll find that its capital capacity is very small. It's impossible for it to have a large amount of capital to do these things. It's actually like the recent Stark airdrop; many people see others with 1,000 or 10,000 accounts. You might not know how much cost is behind those 1,000 or 10,000 accounts; they just tell you how much money they made at the moment. From my perspective, the investment cost and capital capacity of inscriptions are actually very small in the context of the blockchain.
How to sell only after achieving a 10x increase?
Xiao Liu: Personally, when making investment decisions, I'm always very cautious. I won't make a move unless after extensive research, I'm convinced that a particular coin is a good investment opportunity. In my view, I only consider investing when a project has about ten times the growth space, like my perspective on Uni and FIL. My approach to channel investments is the same, never hastily going all-in. I always make decisions to heavily invest after a long period of observation and in-depth research.
Xiao Guo: There's an old saying in the investment world, "A buyer is an apprentice, but a seller is a master." Selling is often harder than buying. As Quan Kai mentioned, he evaluates investments based on market cap, but the problem I encounter is that we often focus on market cap (Marketcap) and overlook fully diluted valuation (FDV). There's a saying that in a bull market, we should only focus on circulating market cap. Many projects, like early Solana, had a small circulating market cap but a large FDV, and this discrepancy caused me to miss many opportunities. For example, with Link, I shorted it when it reached around ten dollars because I saw its large FDV, and I ended up with significant losses.
Shang: Starting from first principles, we need to consider who is buying this coin? The cryptocurrency market is essentially a player versus player (PVP) scenario, considering whether there are more buyers or sellers and if they are willing to trade. A good method is to observe the people around you, the enthusiasts in the market you follow. If you think a project is good but many people don't know or understand it, then in the current crypto market environment, it's very likely that the project will be hyped in the future. Even FTT, despite ultimately going to zero, had people speculating on it during its decline, and the same goes for Luna. So, I observe how many people are hyping up a project. As for me, I particularly like cars, and during bull markets, every time I browse the Porsche website or consider ordering a car, I realize it might be time to sell.
What's the biggest pitfall you've encountered?
Shang: The two experiences I want to share are actually related to trust. The biggest challenge I encountered was the Terra Luna event. This was not just a financial loss for me—in fact, I overall made a profit—but it was a huge blow to my spirit. For those unfamiliar with Terra and Luna, it was a stablecoin project with clear characteristics of a Ponzi scheme. They created a stablecoin minted through another coin. In a bull market, if everyone uses this stablecoin, the supply of the parent coin naturally decreases, increasing demand.
The project attracted many practical use cases connected to the real world due to its execution strength, such as Anchor offering a 20% fixed interest rate. However, it turned out to be just a Ponzi scheme. Many institutions, including myself, 3ac, and Delphi Digital, were attracted by this story, and I believe we believed in it because we trusted the narrative around decentralized stablecoins. We thought that even if it became depegged in the short term, because people trusted the project, they wouldn't easily short it. But in the end, when the project collapsed, we realized it was just a house of cards. For me, it was believing in a project that had the potential to change the global financial system, but ultimately went to zero due to the project's issues and market factors.
Another case is FTX, where I believed in SBF's endorsement and his influence. But in the end, it turned out to be a farce. I placed a significant portion of my bottom-fishing funds on FTX, which disrupted my investment plan. These two cases, related to the fundamental principles of the crypto circle, taught me profound lessons.
Xiao Guo: The turning point in my investments, which wasn't necessarily the biggest pitfall I've encountered, was indeed a major shift in my understanding of the entire industry, and that was the Luna event. I was not an early investor in Luna, nor was I one of those who invested early and waited for it to rise, nor was I a UST staker. I got involved with Luna after its crash, remembering it dropped from over 100 dollars to around 5 dollars due to issuance, and I rushed in to buy the dip, thinking that a super public chain project with a market cap of billions, dropping 90% in one day, would definitely rebound.
However, this event made me realize that the prices in the secondary market are actually illusory. Luna issued a large amount, so its market cap didn't drop that much, but the price drop was exaggerated. At that time, I didn't understand Luna's mechanism well and wasn't familiar with on-chain stuff, so I bought Luna with the usual perspective of trading on exchanges. As a result, since I was trading contracts and not spot, my position was quickly wiped out, causing me a huge shock.
After this incident, I realized the need to understand more about on-chain data and the essence of projects. Since then, I've started to delve into on-chain knowledge, perform data analysis, and interpret projects. At the same time, my view of secondary market prices changed, realizing its deceptive nature. For example, Bitcoin and Ethereum, although their price increases seemed similar in the last bull market, Ethereum's market cap growth was actually more than Bitcoin's due to Ethereum's higher inflation rate. Now, Ethereum might even be deflationary, but Bitcoin's total circulating supply is still increasing every year.
Therefore, if in the next bull market, Bitcoin and Ethereum's market cap growth can reach similar levels, Ethereum's secondary market price increase must exceed Bitcoin's. As ordinary investors, we have difficulty accessing the channels of currency issuance, so we should pay more attention to how we should hold the coins we own in the secondary market. Take Doge as an example, although it's a popular Meme Coin, its annual issuance is large, and much of the increase is actually diluted by miners. Overall, the Luna event was a huge turning point in my investment feelings and understanding of the entire industry.
Xiao Liu: During the bear market of 2022, I summarized some lessons learned. First, I suffered significant losses when investing in Stepn clone projects in the first half of the year, and then turned to the NFT market in the second half, trying to invest in some second and third-tier market platform tokens, with similarly disastrous results. These experiences made me reflect on my investment style, and I found that I tended to adopt an aggressive investment strategy, i.e., going all-in and holding until reaching my target before selling.
However, this strategy has a big problem: it requires accurately judging the market cycle. In the bull market of 2021, this method allowed me to achieve my goals smoothly. But in a bear market, the assets I bought could continue to fall, leading to significant losses. Besides cycle judgment, I also realized the importance of choosing the right track and targets in investments. I invested in Stepn clones and some second and third-tier NFT market platform tokens, not choosing the leading assets in those tracks. Leading assets, even in a bear market, might have declines, but their resilience is significantly stronger than other assets.
Therefore, I've now developed a habit of choosing the leading tokens in that track when investing in the secondary market. This strategy helps me to have stronger resilience in the face of market fluctuations.
What's your current assessment of the market and your strategy?
Xiao Liu: I've already allocated about 50 to 60 percent of my portfolio. I believe we are definitely in the early stages of a bull market, which might have started from the end of last year. Around June and July last year, I've been consistently investing in Ordinals (Ordi), planning to hold long-term until we enter a bigger bull market. In addition, I've invested in some other leading assets, such as the recently popular LRT and its predecessor LST. I consider Pendle to be the leading asset in this track and plan to hold it long-term as well. My core positions are already set, and moving forward, I might look for potential airdrop opportunities. Overall, I believe we are at the beginning of a bull market.
Xiao Guo: Let me talk about Blur. Actually, I don't consider myself a qualified NFT player; most of my investments in NFTs have been failures, buying lots of small images, now with almost no liquidity. However, I ended up investing in a token for an NFT trading platform, which is Blur. To be honest, I haven't used Blur for NFT trading yet; I still use Opensea. So why did I invest in Blur? It was entirely because I started from the perspective of on-chain data analysis. I often observe the Ethereum network's Gas consumption, looking at which contracts are used every day and which have a higher usage. There are roughly three categories here, the biggest Gas consumers on Ethereum are Uniswap, which belongs to liquidity DEX. Then there are the data broadcasts of various L2 sequencers. Lastly, among these other contracts, I discovered Blur. After researching, I found that its market cap was relatively low; when I invested, the FDV was about 1 billion, but its trading volume and market share among NFT trading platforms could be considered comparable to Opensea. Some metrics were behind, some ahead. So I thought a token with a 1 billion valuation and such a strong user base was quite hopeful from a community perspective.
Besides Blur, I think holding Bitcoin is the most politically correct choice in this industry. I remember a KOL saying, no matter how your positions change, you should always put 50% of your investment in Bitcoin. Because Bitcoin is the market leader, when the market fluctuates, most of your positions won't be too affected, allowing you not to make overly hasty decisions due to market volatility. This doesn't mean it will bring huge profits, but at least it gives you a psychological advantage, preventing you from hastily investing in some projects you don't understand well enough. An important point, I think, is to try to invest in things you can understand. Since I began learning and analyzing on-chain data, my evaluation of projects or public chains always starts from the perspective of on-chain data, making my investment decisions more autonomous.
Colin: What's your current view on the inscriptions track?
Xiao Guo: Regarding inscriptions, I think many people might view it with a holistic mindset because they haven't actually participated in it. But personally, I believe that inscriptions themselves, or BRC20, are not the crucial point. For me, the core is that it represents assets on Bitcoin, which is the most important. My interest in assets on Bitcoin, such as commodities, is not limited to inscriptions. Although people might now refer to them as inscriptions or BRC20, I don't think this classification is appropriate. For me, it's more important that they are assets on Bitcoin.
We know that most non-on-chain assets, like dApps or Tokens, are mostly based on Ethereum's ERC20. Take the tokens on CEX, for example; maybe seven to eight hundred types are ERC20, and they do not belong to other chains. Since the rise of ICOs in 2017, ERC20 standard tokens have almost occupied ninety percent of the altcoin investment market. Bitcoin, besides its transfer functionality, seemed not to have been given much importance. Although some solutions like USDT-OMNI were explored in the early years, the right to issue coins was not decentralized to ordinary project parties. Since the emergence of Ordinals and inscriptions, people have started to pay attention to assets on Bitcoin again. I believe if the assets and network activities on Bitcoin are not thriving, it would be difficult for other networks to surpass Bitcoin's prosperity in the long run. This is true for the entire industry.
Colin: It seems that Bitcoin's core developers do not wish to issue assets on the Bitcoin network.
Xiao Guo: How do I view this? For me, compared to the current Ethereum and Solana, Bitcoin is more like a larger commons. Why care about what so-called Bitcoin core developers say? Bitcoin belongs to everyone, not just an individual. If one day the Bitcoin core development team makes some not-so-good decisions, or if their decisions really do not meet the market's needs, they will certainly be abandoned by users. We come to the blockchain world, not to listen to some people's high talks. I believe those who truly understand Bitcoin, who truly believe in Bitcoin, won't care too much about what the core developers specifically say. The key still comes back to the users, what do users really need?
For instance, how many new addresses and new users the Ordinals project has brought to Bitcoin should be quite obvious. For miners, the prosperity of the entire network's fees is also very important. Another point, regarding investment, which I forgot to mention earlier, is that in the new cycle, we cannot only focus on old assets. Looking back, such as the hot assets of 2017, they might have vanished by now, leaving only Bitcoin and Ethereum still standing. To this day, many new users may not even know what YFI is, which might have been the first project to bring a frenzy to retail investors at the start of the DeFi summer. People might have forgotten about YFI, forgotten what SUSHI is.
Our industry has a high acceptance rate for new projects, but their elimination rate is also very high. New assets and new gameplay continue to emerge, pushing the technological or conceptual iteration of this industry. But in the end, most will return to Bitcoin, I believe that's the case.
Shang: Last year, I once thought Crypto was really uninteresting, feeling like it was just a bunch of scams, with everyone speculating on MEMEs, and fewer and fewer people paying attention to the significance behind Bitcoin, Ethereum, and DeFi for the world. At that time, those who survived were focusing on things like Dogecoin. But later, I thought this might just be a phase of the market. What's different this year is that the Bitcoin ETF was approved, and we discovered some interesting projects, such as those related to Real World Assets (RWA), which might attract institutions.
For me, the biggest indicator is how many newcomers there are, how much new capital is flowing into the Crypto market. In 2021 and 2022, because everyone received stimulus checks, many people came to the Crypto world. Even if Crypto isn't perfect, it's still a place full of opportunities where people can earn more money in their spare time under the impact of AI, participating in a whole new world.
As for investment, I think the safest way is to participate in airdrops. Now, many projects need to issue tokens; they have raised too much capital, and there are too many similar projects, leading to an oversupply. Everyone might be focusing on at least more than 10 projects, and almost no project will consider not issuing an airdrop; this has almost become a consensus in the industry. Especially after the first phase of the Blur airdrop, users are still very scarce relative to the number of projects. So, participating in airdrops or some clear investment opportunities can be profitable. For example, with Blur, I took nearly 100,000 Blurs with almost no risk through a lending platform. Then there are airdrops like Jupiter and JTO, which are extremely low-risk or even no-risk opportunities. I believe this situation may continue in the next cycle.
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