Sirwin
Sirwin
An image of Bitcoin as the moon spotlighted from the earth.

Beyond the Hype: Timing the Crypto Maturity Cycle for Maximum Gain


The cryptocurrency market forces the following imperative on you which you ignore at your financial peril:

  • You must aim either for a long-term hold on something relatively established that will have lower likely gains or a short-term trade with a new, small coin that you hope will return large sums in this cycle.

If you pick something in between you will likely lose money in cryptos. The reasons turn on the three phases of the crypto maturity cycle--it's something that you are not likely to recognize unless you are an institutional investor as I am.

Let me begin with an explanation for why that cycle even exists.

1. Why the Crypto Maturity Cycle Exists

Crypto projects are tech projects. Unlike other startups, they have no equipment to repossess or buildings to auction should the venture turn unprofitable. As a result, start-ups need angel and venture capital (VC) funding and not traditional bank loans.

Early investors, because they take on significant risk, demand significant portions of ownership in exchange for those funds. Their goal is to make 10x - 100x holding for a 5-year (ish) development period. When the coin lists on major exchanges, they plan to dump their positions as soon as they are allowed to do so. Then they can return to another project.

  • Part of what the VCs can provide young projects are the connections needed to list on large exchanges such as Binance, Coinbase, KuCoin, etc.
  • This access to large retail volumes is part of their investment model.
  • They also facilitate the marketing of the new coin on those large exchanges once they list.

Because retail investors aren’t in a position to invest early in these projects—the SEC is “protecting” retail investors from doing so—this establishes a predictable crypto market cycle that divides into three phases.

2. Phase 1 - The Early Trade

Consider Aptos (APT), which is just exiting this phase. 

In order to encourage early adoption, VCs typically have their coins locked up and there are relatively smaller amounts of sell pressure applied to the token. The blue portions represent how many coins, by way of volume, will be entering the market.

main-qimg-f2283dbd03c3c52be9c8e319a4143596

During this period, early traders can make significant sums since the circulating supply of coins is small, meaning that a relatively small buying pressure can push up the price.

What matters at this stage is whether the token is matched up with a narrative that catches the market's attention. If so, traders can make 100x returns in a single cycle.

But when those large volumes of early holders unlock, the coin transitions into phase 2 ... something that will continue in APT's case until 2032!

2. Phase 2 - The Valley of Death

Here’s the one chart you need to understand.

It’s of Internet Computer (ICP). This coin supports some fantastic technology. It provides decentralized file storage, basically Amazon Web Services storage, and its competitors are Filcoin (FIL) and Arweve (AR). I think ICP is the best for a number of reasons (but this isn’t a tech review, so we’ll leave that aside for the moment).

Here’s the chart.

main-qimg-67f488bf8a9ea22eefb2b5605dc53288

You should learn 2 things from that chart:

  1. Good Technology does not translate into good gains.
  2. Early sell pressure, likely from early funders, will destroy your returns.

Don’t become VC exit liquidity.

Remember, the early funding model aims to make money up to the point of public listing and then return that money to facilitate the development of more coins as they come to market.

To be fair to ICP, their case is more complex than the above suggests, but the chart is instructive intuitively. When a coin passes beyond this period (you can tell by comparing circulating supply with max supply on CoinGecko) it enters phase three.

3. Phase 3 - Investible Coins

This includes Bitcoin (BTC), Ethereum (ETH), AAVEMATIC (soon renamed POL), and LINK.

These are coins that have been through more than one market cycle, have established technology, have an established use case, and have low coin dilution.

They don’t always have narratives that push market interest into them. Bitcoin has recently seen a boost from the ETF narrative. ETH might get one from its EIP 4844 upgrade. MATIC doesn't have a strong narrative, but it is passing through a significant upgrade to integrate all its various facets. 

LINK and AAVE are both participating the Real World Asset narrative in different ways--which is why they've done exceptionally well.

The thing about these coins is that you can afford to dip buy them as they are investible and not only trade-worthy.

4. How to Use The 3 Phases In Crypto

To summarize, we have a three-phased cycle for cryptocurrencies.

  1. Early market cycle - until the VCs have their large token unlocks
  2. Middle market cycle - where VCs and early holders dump on retailers
  3. Late market cycle - where VCs have exited and the coin can establish legitimate gains

When you are picking a coin, you need to understand where you are in that market cycle. If you do not understand this, you are investing by chance. Let's look at some case studies.

Featured below is an image depicting Arbitrum's (ARB) unlock schedule. Arb is an L2 on Ethereum and the image is represented on the Token Unlocks page. What stage is ARB in?

main-qimg-ff2ca293a069fc1ffb55fefb6c9bc10b

Answer: it's stage 1.

The team will market the coin into that unlock cliff, but until then, you're probably fine trading it. Holding after that point will land you in phase 2 and you're going to face middling returns even in a bull market.

Here's another one called StarBots -- remember, bot coins have their own sort of narrative. What phase is this one in?

Image of Starbot unlock schedule

Answer: this one is in phase 2 until what looks like January 1 of 2024 when the aggressive unlock phase is mostly over. I don't care how awesome this project is, remember ICP.

5. Concluding Thoughts

That should explain most things for you and prevent you from buying coins in the wrong part of the crypto cycle.

I also gave you some coins to look at long-term (Phase 3): BTC, ETH, MATIC, AAVE, and LINK. This is my primary focus at the moment.

I discussed a single Phase 1 candidate: ARB. But Phase 1 really turns on the prevailing narratives at any moment. Right now, the top narrative is the Bitcoin ETF, so I’m not focused on Phase 1 coins. Notably, I want Phase 1 coins with possible 25x and up returns ... and ARB is too big for that. Maybe worth trading for a bit, but it's hard to say.

I'd also prefer AI coins as OpenAI's conference is currently running - until November 6 - so FED, OCEAN, TAO. Very short term on these and they've already pumped quite a bit. That's the kind of thing you want in Phase 1 though.

Happy Trading!


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Disclaimers and Disclosures

This post is provided for educational and entertainment purposes only and should not be relied upon for business, investment, taxation, or legal advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by 1.2 Capital Management. (An offering to invest in a 1.2 Capital Management fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation--all of which should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by 1.2 Capital Management, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

The views expressed here are those of the individual author and are not the views of 1.2 Capital Management, 1.2 Labs, or their affiliates. Certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, 1.2 Labs and affiliates have not independently verified such information and make no representations about the enduring accuracy of the information or its appropriateness for a given situation.

Finally, as the author of this report, you should recognize that I do actively invest. Many of my trades are quick and I do write about many investment items, whether stocks, digital assets, collectibles, and the like which I do not own. For the purposes of disclosing any conflicts of interest, assume that if it is covered, I own the investment item. Or if my coverage is negative that I am short the investment item.

Note: The author wrote an earlier version of this essay first on Quora which may be found here: https://www.quora.com/What-is-the-best-cryptocurrency-that-I-can-buy-now-with-small-money-that-would-get-me-benefits-during-3-4-years/answer/Sebastian-Purcell-PhD-1 


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Sebastian Purcell, PhD
Sebastian Purcell, PhD

CEO for both 1.2 Capital and 1.2 Labs | I'm an academic turned crypto hedge fund manager and incubator director.


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