Super Deep! The two most common issues in crypto trading!

In the crypto world, you often encounter various problems, some are common issues, others are individual.

According to my incomplete statistics, there are two main types of questions I get asked the most.

🚩1 Bottoming Questions
In crypto trading, one of the most frequently asked questions is: Can this coin be bottomed out?

Some traders even find many reasons to justify their bottoming: for example, the coin’s price has hit a historical low; during the mining era, the coin’s price has fallen below the mining cost; I hold a small position to bottom, add more on dips, it will rise sooner or later.

Does a price hitting a historical low mean it can’t make new lows?
Does breaking below mining costs mean it won’t fall further?

When the price is at a historical low, perpetual contracts in the crypto market often carry long-term negative funding rates. If the price doesn’t rise for years, you need to hold positions long-term, endure the daily funding fees, and pay frequent rebalancing costs. Before it rises, these costs can make you taste what it’s like to have the price not drop much but still lose a lot of money.

Therefore, these reasons for bottom-fishing are all ungrounded and invalid.

When you think about whether a coin can be bottomed out from this perspective, you’ll be troubled by many details; when you shift your perspective, you can free yourself from these problems.

Regarding whether cryptocurrencies can be bottomed out, you only need to understand and remember one sentence: Cryptocurrencies are pro-cyclical assets.

Questions like “Did the price hit a historical low” or “Did it break below mining costs” are no longer necessary to consider.

Core logic of pro-cyclicality: The three major key cycles

The first is the supply cycle.

For example, the Bitcoin halving reduces mining rewards over time, or during stages where a certain chain project issues tokens in concentrated rounds, or altcoins see a surge in mining output. When supply overshoots, your trading direction must follow the supply cycle, not because Bitcoin, Ethereum, or some altcoin’s price hits a historical low and you go bottom-fishing, nor because the price falls below mining costs and you go bottom-fishing.

At such times, you’ll find that after new lows, there are even lower ones; after breaking mining costs, prices can continue to fall.

Even if it drops significantly, a short-term rebound from short covering will happen, but after the rebound, it will continue to fall. Because its supply cycle determines that prices only fluctuate with the cycle.

In other words, pro-cyclicality is the fate of cryptocurrency prices. Counter-cyclic trading is just reckless and desperate struggle by gamblers!

The second is the demand cycle.

For example, a certain chain project may not issue tokens centrally, but when downstream sectors like DeFi, NFTs, or the Metaverse enter a demand downcycle, user activity plummets, severely impacting token demand, which also leads to relative oversupply of tokens.

The same logic applies: you can only trade following the demand cycle, not because the price hits a historical low and you go bottom-fishing, nor because the price falls below mining costs.

- The third is the macro cycle. The most common are global quantitative easing and Federal Reserve rate cuts. During these times, essentially, too much money chases high-risk assets, causing the prices of all cryptocurrencies to rise. Those aligned with supply or demand cycles tend to rise first and more significantly; those opposite to these cycles tend to rise later and less.

In such times, the best approach is to go long on coins following the macro cycle plus the supply or demand cycle, rather than trying to bottom-fish coins that are opposite to these cycles.

Because the risk-reward ratio for the latter is poor: when they rise, they do so slowly and less; when they fall, they tend to drop first and faster.

Available emotional cycles
Finally, there is a common cycle called the emotion cycle. This cycle is often triggered by small articles in crypto circles, KOL shouting orders, or sudden policy disturbances, such as rumors of “100x coins” or favorable/unfavorable regulatory news.

Personally, I do not recommend trading based on emotion cycles, because emotion cycles often lack persistence. Instead, you can use emotion cycles for contrarian trading.

Of course, my suggestion to do contrarian trades during emotion cycles is premised on the fact that these emotion cycles are themselves opposite to the supply or demand cycles.

Supply and demand cycles are relatively long-term and stable, while emotion cycles are short-lived and unstable.

When a brief and unstable emotional disturbance runs counter to the direction of supply or demand cycles, it provides a great entry opportunity.

So, regarding bottom-fishing, you don’t need to get lost in trivial low-dimensional issues. Instead, think from a different perspective about the essence of this asset class — cryptocurrencies are pro-cyclical assets.

There are four types of cycles in crypto trading: supply cycle, demand cycle, macro cycle, and emotion cycle. Cryptocurrencies are pro-cyclical assets, mainly trading along the first three cycles. The most common is following the supply cycle, then demand cycle, and during macro years, mainly following macro cycles. Emotion cycles can be exploited, especially when they conflict with the other three cycles, often giving you an excellent entry opportunity.

In summary: cryptocurrencies are pro-cyclical assets. Pro-cyclicality is their destiny; counter-cyclic trading is just reckless and desperate struggle by gamblers!

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🚩2 Big Shots’ Questions
In crypto trading, another frequent question I get asked is: This person is very strong, this person is very famous, this person made hundreds of times profit, this person has stable profits with no drawdowns over a long period, so should I spend money to learn from him, should I buy his products, etc.

Here are a few points of my own to consider:

First, in the internet world, identity is self-created or packaged by institutions.

The most common titles are things like “Contract War God,” “Hundredfold Coin Discoverer,” “From tens of thousands to billions,” “Decades of stable profits with no drawdowns,” “King of this track,” “King of that coin,” “On-chain expert,” etc. These titles are either self-assigned or crafted by related institutions for promotional purposes.

Second, it’s much easier to scam money than make money in crypto.
But to scam, you need to make others believe in you, and to do that, you need some kind of identity or title as credit proof.

So some unscrupulous people, for the sake of scams, invent fake impressive titles or are given titles by benefit-sharing organizations to create an appearance of authority.

The simple truth is, for those lacking discernment, fame is the best deception tool. Cases of KOL shouting orders to pump or dump, packaging aircoins to harvest retail investors, are fundamentally just false identities used to scam.

Third, dispel the myth of any so-called big shot you idolize.

On the internet, any big shot you think is awesome—listen to what they say, but don’t fully trust. Don’t buy their investment products, like paid communities, signal services, or private tokens.

I don’t care whether these big shots are real or fake, because the higher the short-term returns, the less reproducible they tend to be.

Don’t even think about copying them; even they can’t replicate themselves. So whether that person is real or fake, it doesn’t really matter to you.

Everyone can admire certain figures in various fields, but don’t overly idolize them.

He’s just a person, yet you treat him as a god. Over-obsession and attention to others often lead to losing yourself. Someone who’s lost himself is most prone to being scammed.

Because people who get scammed don’t understand a simple truth: when you put all your hope in others from the start, you’re taking the first step in the wrong direction.

Whether in life or crypto trading, you’ll hear many seemingly useful maxims, but in reality, those universal principles are useless to you. The best gifts in life are often what you give yourself; the most useful truths are those you realize through your own practice, not what others tell you.

The same applies to crypto trading: truly useful trading experiences are those you learn from your own practice, not what others tell you.

What others tell you is only superficial; understanding the essence comes from your own experience. Only the insights you gain from practicing are both form and spirit, truly beneficial to yourself.