Before the "copycat season" comes, formulate your investment theme strategy

Original source: Crypto, Distilled

Original translation: TechFlow

A hypothesis: It is now the fourth quarter of 2024, the price of Bitcoin has reached $80,000, and the altcoin season has finally arrived. You might rely on your intuition and try to grasp the peak of the market. But is there a better way?

"Not preparing is equal to preparing for failure."

The trap of price prediction

It is a common mistake to manage investments solely by price targets. These targets are often subjective, driven by emotions or influenced by social media. It is extremely difficult to accurately predict prices and grasp the timing of their changes.

The Tactical Advantage of Mindset

Every market dip and rise makes it harder to think rationally. Your investment goals will keep changing, and you will be more likely to focus only on information that supports your views and ignore other important signals, leading to increased confirmation bias. At the same time, your ability to maintain discipline in the investment process will gradually weaken. It's a battle with your own heart, and this inner struggle will become more and more difficult as the amount of money invested and the risk increase.

The Power of Thematic Investing

When investing, what strategies are there besides relying solely on price and sentiment? There are many options: market sentiment, technical indicators or on-chain analysis. However, strategies centered on a clear investment theme or investment logic are often the most reliable.

Creating an Investment Theme

An investment theme is a well-reasoned analysis and argument for the potential of a project over a specific time period. This theme can be composed of a variety of factors and does not necessarily rely solely on price. A good investment theme should be testable so that investors can manage their investments accurately and flexibly through testing and adjustment.

The rationale for thematic investment

Thematic investing has several distinct advantages:

· Scales with your growing portfolio

· Removes the influence of emotions and market sentiment

· Provides clear validation and disconfirmation criteria

· Removes the noise of short-term price fluctuations

Example 1

Suppose you are bullish on a particular layer 1 blockchain (L1). Rather than targeting its past ATH, you could focus on the following metrics:

· Total Value Locked (TVL)

· Transaction Volume

· Number of Active Wallets

Going a step further, you can focus on relative metrics, such as market share or awareness.

Validation and Disconfirmation

Next, set validation criteria based on the key performance indicators (KPIs) of your choice. This helps check whether the L1 is developing along the path you predicted, or deviating from it. For example, you can use the growth of KPIs in 30 days as a basis for managing your investment thesis.

Example 2

Consider a new project with an AI agent. Instead of focusing on the price, you can focus on the following key performance indicators (KPIs):

· Number of agent transactions

Set a benchmark based on your belief, such as reaching 1 million on-chain transactions.

White Paper vs. Minimum Viable Product (MVP)

When exploring lesser-known and more volatile cryptocurrencies, many projects only have a minimum viable product (MVP) or even no actual product. In this case, focus on the project's roadmap nodes or milestones.

Navigating Events

Your investment thesis may be more focused on the execution of events rather than the growth of indicators. As they say, "Buy the rumor, sell the news".

Sometimes, it is smarter to exit as soon as the date is confirmed rather than waiting for the event to happen. After that, set new indicators and form a new investment thesis.

Other Strategies:

Is a complex thematic investing strategy not for you? Consider these alternatives:

· Time-Based Strategies

· Fear & Greed Strategies

· Relative Excess Return Strategies

Let’s dive deeper into each strategy.

Time-Based Strategies:

Time-based strategies offer a simpler, more reliable approach. Consider selling a small portion of your portfolio on a weekly or monthly basis.

Adjust the timing and amount of your sales based on macro factors, liquidity, and your goals.

Fear and Greed Strategy:

Market sentiment swings like ocean tides, pushing prices higher when greed is high. The key to the Fear and Greed strategy is to gain profits when the tide is high. In this strategy, a weighted fixed investment exit strategy based on the Fear and Greed Index can be considered.

Relative Excess Return Strategy:

Imagine the market as a race, and each currency is like a racing car. The key is to identify which car will accelerate faster relative to the others. One way to profit is to sell at a specific MC ranking. For example, sell 10% at the 50th market capitalization (MC) ranking, sell 20% at the 40th, and so on.

Summary

The cryptocurrency market is highly speculative, and investor emotions (such as fear and greed) often influence decision-making. In this context, establishing a risk management system that is independent of price fluctuations can give investors greater peace of mind and not have to worry too much about the impact of short-term market fluctuations.

Successful investors often prioritize investment themes based on in-depth research and analysis rather than engaging in short-term speculation. This approach helps them make more rational and sustainable investment decisions.

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