Important lessons on narratives and trading in the two first months of 2023
It's time to position for the next bull run
This is the first article on my “Crypto Narratives” Substack.
Until now, I have been mainly writing my thoughts on Twitter (click here to see my profile), but it’s not very convenient for long-form writings and for knowledge conservation.
So here it is, I am now a Substackoor.
This first article is basically a slightly modified version of a Twitter thread I recently wrote and I think is important, in order to better understand how to position for the next bull run, taking into account the information given by the market during the January-February rally.
Note that the analysis below was made around March 9 when the market was flat before the USDC depeg, which was followed by a new leg up to where we are now (March 18, with BTC price around $27k and ETH at $1800). The market movements of the last 10 days are thus not included in the analysis.
1. “Risk-on market” lessons
The two first months of 2023 reminded us how it is like to trade in a "risk-on" environment.
Buying dips and longing breakouts is rewarded, and deploying into the right projects / narratives / ecosystem can bring you outsized returns.
For example :
$LVL (perpetual dex on BNB chain) made a 100X
$RLB (casino coin on Solana) did a 30X
AI coins had a massive run : $AGIX more than 10X'ed
Some Arbitrum coins too : $GRAIL, $VELA, $RDNT, $Y2K for example
We've seen a lot of different narratives take off, now is the time to sort out the ones that have real potential (L2 ecosystems, LSD tokens, perp DEX, NFTfi) and the short-lived retarded ones (AI, "Chinese" coins, maybe BTCfi).
2. Clues
The market has given you clues as to what will perform best during the next bull run and what narratives now seem outdated.
You just have to look at the out/under-performance of each basket of coins VS [BTC+ETH].
It's not an exact science, and you have to think critically, but it's a good start to guide your portfolio allocation.
3. Outperforming categories
So let's look at the main outperforming categories for January-February 2023 :
AI coins : scam narrative in my opinion, no long-term potential but great to ride when there is momentum
Arbitrum ecosystem : one of the main ecosystem to watch, the most vibrant right now, with lots of promising projects and asymmetric bets to catch
LSD tokens : major narrative of Jan-Feb, especially because of the outlook of Shanghai update. Good tokens since they have clear product market fit and a revenue model. Probably good long-term positions, but potential sell the news event on Shanghai.
Optimism ecosystem : Less vibrant than Arbitrum in my opinion, but still the 2nd biggest L2 right now, partners with Coinbase, probably some high multiples to get there. But Arbitrum and Optimism ecosystems are high-beta to ETH, so be careful with the drawdowns.
"Chinese" coins : retarded and forced narrative, some old coins vaguely related to Asia pumped for a week but that's all. (This doesn't mean that you should not include Asia as a variable in your investment)
Perp DEX : this is one of the long-term narratives that has been present for several months and related to "real yield". I like this narrative a lot and thinks it is still promising. Think about $GMX $GNS $DYDX but also $LVL $VELA huge returns.
ZK tokens : That narrative was a bit forced (everything vaguely related to ZK went into the basket) and never lasted very long, but I think we will see it again and again, and some ZK coins could have a bright future. (I like $MINA for example)
"NFT Finance" : many of these coins showed a lot of strength ($BEND, $JPEG, $X2Y2) but the $BLUR airdrop and general market weakness caused massive dumps on these tokens. This is a narrative I remain interested in for the long-term.
Bridges : I don't have a strong opinion about them, but they outperformed the market (e.g. $HOP $SYN $STG $MULTI), so worth watching
BTC Finance : these are coins like $STX $T $RIF $REN. Forced narrative, does not look strong to me. But they will probably shine when there’s a BTC season.
Decentralized stablecoins and Curve ecosystem outperformed too, but I don't think these are real narratives.
4. The underperfomers
You should also know which categories underperformed the market, and you probably should stay away from most of them :
Oracles
Wallet coins
BTC forks
Luna ecosystem (lol)
Dino coins
Cosmos ecosystem (I remain bullish long-term on this one)
5. 2021 narratives ?
The main 2021 narratives don't seem to outperform much :
Alt L1s and DeFi 1.0 had more or less the same returns as BTC/ETH
Metaverse had a run until mid-january and then slowly bled vs BTC
FTM ecosystem is the best performing "old" alt L1 eco but still not a significant outperformance
6. The new coins
Conversely, the shiny new things (including new alt L1s) are always going to attract much of the market's attention at one time :
Aptos $APT returned more than 400% in three weeks
Same for Optimism $OP : +250%
$CANTO price was multiplied by 5
None of these three look like interesting longs to me now though (Aptos and OP have huge FDVs).
Just remember to have the news coins in your radar.
The most recent are for example $BLUR, $SUDO, $PRIME.
7. Momentum
Follow the trends. Momentum is extremely important in crypto, which means that :
Outperformers often remain outperformers longer than you would think : we've seen this with $AGIX $LDO $APT $OP
Shorting is dangerous and can be severely punished in a risk-on environment
8. Price discovery
Coins that start their price discovery are generally good longs :
We've seen this with $APT $GMX $GNS $OP $SSV $CANTO
9. Breakouts
The same applies to "multi-month" breakouts :
$DYDX, $FTM, $INJ, $RNDR, $FXS fell into this category
10. Unlocks and high FDVs
Unlocks and high FDVs do not matter that much when there is euphoria in the market :
On the contrary, these can even become bullish catalysts since a short squeeze can be initiated : see $DYDX $APT $MAGIC $OP and even Alameda low-float scams in January.
I hope that these lessons will enable you to be better positioned for the next bull run.
If you are interested in more things related to narrative trading, you can follow me and also read my market narrative history thread :
Nice post. Keep up the good work! I like how you directly state your opinion.