Original author: Edgy - The DeFi Edge
Original translation: TechFlow
The goal of this cycle is to achieve life-changing gains.
If you want to achieve life-changing gains in this cycle, you need to construct your portfolio correctly. However, this cycle has played out differently than we expected. The price of ETH has almost stabilized around $3,200, and a full-blown altseason like in the past has not yet appeared.
What’s even more surprising is that every few weeks, new investment trends emerge in the market. If you have been holding Goat or Zerebro (a pioneer in the AI field) since October last year, you may be underperforming the market now.
Therefore, it is crucial to adapt to market changes.
The New Year is a good opportunity to review and adjust your investment portfolio. I want to share how I plan my investment strategy, hoping to help you find a method that works for you. For me, dividing the portfolio into different buckets is a very effective way to better manage risks while clarifying each goal.
It is important to note that I will not give a specific allocation ratio. Everyone has different goals and risk tolerance. For example, a small investor may be more inclined to take risks, while a large investor may focus more on conservative strategies.
What I share is a strategy framework to help you find an investment method that suits you.
First barrel: multi-year reserve
Examples: Bitcoin, Ethereum, Solana
Goal: To achieve wealth growth through long-term holding and hedge against the risk of fiat currency depreciation. This part of the funds is to ensure that you can make stable profits over a long enough period of time. Regardless of market fluctuations, these tokens are core assets held across multiple cycles, and each cycle will make this investment bucket larger.
I regard this part of funds as an untouchable reserve. In each cycle, funds will flow into this investment bucket, but there will never be funds flowing out. All profits will eventually go into this investment bucket.
In a bull market, you may feel FOMO. When you hear that a new token has great potential, but you find that you don’t have extra funds on hand, you may want to use the reserves in this bucket:
“I will sell some Bitcoin and rush into this new coin. Once this coin increases 10 times, I will buy back Bitcoin!”
These types of plans rarely work out, and even if you do make 10x, you might feel like a genius and continue taking risks until you eventually give your money back to the market.
The core mission of this part of the fund is defense. No matter what happens in life, I will not start from scratch. Bitcoin may be worth $1 million in the future. You certainly dont want to regret selling Bitcoin and chasing some garbage coins that will eventually go to zero.
In the past, I used to have an equal weighting of Bitcoin and Ethereum in this investment bucket. But then I changed my strategy and now lean more towards Bitcoin. The reason is simple: Bitcoin, as a digital gold, is irreplaceable, while Ethereum faces challenges from multiple directions in every cycle. It not only has to compete with other smart contract platforms, but also needs to solve its own scalability problems and complex ecological environment.
Most of my reserve funds are stored in cold wallets, and I also use about 30% of my funds for DeFi yield and potential airdrops. For example, I earn yield for BTC through @SolvProtocol while striving for airdrop opportunities. And my ETH is used as $mETH for liquidity mining on @0x Mantle.
How I measure success: At the end of each market cycle, I measure my success by the size of the growth of this bucket. The goal is clear: keep accumulating Bitcoin to prepare for the future.
Bucket 2: Cycle Belief Positions
Examples: Virtuals, Hyperliquid, Solana, Sui, Pendle, etc.
Goal: Choose assets you really have confidence in. Many people lose money because of frequent trading and excessive rotation, and the focus of this part of the portfolio is to hold for the long term and avoid these problems.
These are the assets you have the highest conviction in, and you won’t waver even if the price drops 25%. They are usually the assets at the heart of the hottest narratives in each cycle.
Start to lay out at the beginning of the cycle, hold these assets throughout the cycle, and gradually profit as the price rises. Completely sell these positions before the bear market comes, and then look for opportunities to re-enter the market during the bear market.
It is important to note that it is normal to adjust strategies. I originally listed ai16z as one of my long-term holdings in this cycle, but recently I decided to liquidate it, even though it should have been a long-term holding. The reason is simple: I don’t want to deal with the unpredictable behavior of the founder anymore.
The key is: stay strong in your beliefs, but be flexible to change.
Bucket 3: Short-term trading
Goal: Short-term trading is your main source of high returns, but it also comes with greater volatility. Focusing on the hottest areas of the market is the key to success.
At this point, I don’t think there will be a full altcoin market, where all assets rise at the same time. The reason is that there are too many different tokens in the market and not enough liquidity. This phenomenon is called “altcoin dispersion”.
Therefore, it is particularly important to choose the hottest areas in the market. In this cycle, we have seen strong performance of memecoins and AI agents.
Here is how I do it:
Identify 1-2 areas of strongest performance;
Find the projects with the most potential in these areas;
Transfer profits to BTC or stablecoins to lock in gains.
How to find hot areas? To be honest, experienced investors can usually sense trends through the market atmosphere. However, there are now some tools that can help us quantify these trends.
For example, @_kaitoai is a paid tool, while @_dexuai is free and very effective.
From the data, we can see that AI agents have performed well since November 11, 2024. You dont need to enter the market when the trend just sprouts, just act decisively when the market signals are clear.
Some people may question: These AI agents are just packaging of ChatGPT.
Maybe so, maybe not.
But as long as the market is willing to give me a return, I will take the opportunity instead of wasting time on social media to oppose for the sake of opposing.
Think of understanding industry developments like surfing. I’m always looking for the biggest waves, ready to catch the next opportunity.
For example, I have always believed that AI agents will revolutionize DeFi. This is because the learning curve of DeFi is too steep and the user experience (UX/UI) is not very friendly.
In the past few months, I chose to invest in MODE Network because they have unique advantages in this field. They have been deeply exploring this direction long before DeFAI (the combination of DeFi and AI) became a hot topic.
However, my investment logic is to be loyal to trends rather than to specific protocols - my goal is to find the fastest horse in each field.
When @DanieleSesta launched @HeyAnonai, I judged it to be a faster horse and adjusted my portfolio decisively.
Why would I do this? Because in the last market cycle, I witnessed him successfully drive two protocols to a market value of $1 billion. Not only does he have an extraordinary ability to drive protocol value, but he also demonstrates an uncompromising competitive spirit, and this focus makes him a strong player worth paying attention to.
(It should be noted that I have no intention of making any negative comments about the MODE network. I think their development progress is ahead of most DeFAI projects and may perform better in the future. But I hope that by sharing these stories, this article will not only remain at the theoretical level.)
In the field of cryptocurrency, the key to making money is not what you think will rise, but what you judge other people will think will rise. This is the core idea of the Keynesian Beauty Theory - the collective expectations of the market are the key to determining prices.
As you can see from the chart below, DeFAI is gradually gaining market attention. Therefore, I believe this narrative still has great potential and is worth continuing to pay attention to and explore.
In short-term trading, I usually focus on the following key points:
Keep an eye on emerging areas. I am always interested in new categories, which is why AI Agents are so compelling. Currently, new use cases for AI are emerging in an endless stream, making it almost difficult to accurately assess their value. For example, AI Agents combined with the Metaverse, or an AI tool specifically designed to find system vulnerabilities.
As of January 15, 2025, DeFAI (the combination of DeFi and AI) is a brand new field. If a bigger opportunity emerges in the next few months, I will decisively adjust my strategy and catch that wave.
The importance of rapid iteration. In the crypto space, users’ attention span is extremely short, and has even been likened to the “memory of a goldfish.” Therefore, the speed at which a team updates is crucial. The ability to iterate quickly is key to a protocol retaining market attention.
Should we stick to our convictions or follow the trend? In simple terms, trading can be divided into two styles:
The first is a belief-based trade. You build confidence in a project through in-depth research, early planning, and then you wait for other investors in the market to gradually discover this opportunity. This is also my strategy for the GAME project. I bought it very early and held it patiently for a few weeks until its price started to explode.
However, this approach also has risks. When prices remain sideways for a long time, you may wonder whether you are a genius with a long-term vision or a fool who misjudged the situation.
The second is to chase the markets momentum. When a project suddenly explodes, you quickly follow the trend and take advantage of it. This method is also effective. Both have their advantages, and the key is to find a strategy that suits you. In this process, recording a trading log is very helpful. Through long-term data accumulation, you can discover your own trading patterns and summarize in which situations it is easier to succeed.
In the end, you need to figure out what you are best at investing. I don’t like spending time in the “bottom of the trenches” digging for projects with a market value of less than $1 million. This is not for me.
From my experience, my most successful strategy is to find protocols with a market cap between $5 million and $25 million, and then hold them until the market cap breaks above $100 million. This is my way, but everyone has different strengths. Maybe you are more experienced in those higher risk, higher reward degen (speculative) investments.
In trading, I follow the following principles:
I would cut my losses very early.
I usually take profits when the gains reach around 3 times.
If a project performs exceptionally well, I will invest more in it.
Bucket 4: Stablecoins
Stablecoins play an important role in investment portfolios and have the following uses:
Reduced volatility: Stablecoins can help make your portfolio more stable. After all, if you are fully invested in high-risk tokens, it is difficult to bear a 40% drop in your assets in a day. Stablecoins can keep you calm and continue to participate in the game when the market fluctuates.
Providing ammunition for bargain hunting: Looking back at previous bull markets, the market has never been rising all the way, and there will always be opportunities for corrections. Having stablecoins on hand allows you to seize these opportunities.
Earn income: Currently, the annualized yield (APY) of stablecoins is about 15-20%, which can add up to a considerable income. I personally recommend @0x fluid as an income tool.
I would divide stablecoins into two categories:
Permanent income: This is the stablecoin I withdraw from the market, planning to permanently exit the crypto market. You can use them to participate in yield farming, or directly exchange them for fiat currency. This ensures that you don’t lose all your profits in one cycle.
Temporary income: This part is the funds I temporarily store after making a profit from certain assets, waiting to find new investment opportunities. For the convenience of management, different stablecoins can be used to distinguish, such as storing permanent income as USDC and temporary income as USDT, or transferring all permanent income to Fluid.
Diversification is key: We have all witnessed some accidents with stablecoins in the last cycle, so it is very important to diversify holdings of different types of stablecoins (such as USDC, USDT, sUSD, and even some stablecoins based on real assets). At the same time, distributing them on different yield platforms can also reduce risks.
Other suggestions
Put all your eggs in one basket, but keep a close eye on that basket. This sentence can be interpreted in many ways. I am not concentrating all my funds on one protocol, but now I am focusing my main energy on the field of artificial intelligence agents.
Also, I always laugh when I see someone talking about buying the dip but investing in more than 25 protocols at the same time. You need to have real conviction in a certain direction. Otherwise, even if you bet on a project, the improvement to the overall assets will be minimal.
I think holding 5-7 tokens is the optimal strategy. When I choose a token, I go all in: I’m active in its Discord or Telegram group, follow notifications about the protocol, founders, and team, and listen to all the podcasts about it.
If you hold more than 15 tokens, it will be difficult to research each project in depth. It may also indicate that you lack confidence in your investment.
Don’t ignore the market’s trends. My biggest successes often come from entering the market when the token price starts to soar. Winners usually continue to win. So how do you tell if you are just a “buyer”? It’s actually very simple.
Ask yourself, are you buying because of fear of missing out (FOMO) or because of a KOL recommendation, or because you have done thorough research and have built your conviction? Are there enough developments and catalysts for the protocol to continue to attract market attention?
Markets rotate very quickly. Today, first-mover advantages are not as strong as they used to be. For example, GOAT and Zerebro initially dominated the market but eventually lost their lead. If a protocol has a first-mover advantage, you need to evaluate whether its advantage is sticky enough. Is its moat strong enough?
Take AIXBT for example, it does have a first-mover advantage, but its market penetration and user mindshare far exceeds other Alpha robots. I really like the way they develop most of their technology in-house, which makes it more difficult for competitors to copy their work and seize the market.
Design a portfolio for a bear market. Be clear about your investment goals, and then achieve them through reverse engineering. For example, you can choose 30% Bitcoin (BTC) and 70% Stablecoins. In any case, you must gradually lock in profits when the market rises.
Re-examine your portfolio. Your portfolio may be filled with ineffective assets, such as some moonbags or tokens that you have an emotional attachment to. Ask yourself, if you were to build a portfolio from scratch, what would it look like?
Remember, the act of continuing to hold an asset is actually equivalent to buying it again every day.
“When do you convert crypto to fiat?” When you need to. I don’t convert crypto to fiat very often, usually only when I need to pay taxes or when my crypto assets are too high relative to my traditional financial (TradFi) assets.
My goal is to keep my crypto assets generating income for me. I try to keep my cost of living low, and my company (The DeFi Edge) pays me a fixed salary every month. Therefore, I will not easily interrupt the compounding growth of my assets.
My goal is to keep crypto assets generating income for me. I keep my living expenses low and receive a monthly salary through my company (The DeFi Edge), trying not to interrupt the compounding process.
