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Late to the Game, First in Gain: Why Latecomers Win Big in Crypto Trading


What do you do when you miss a coin like Solana (SOL) as the bull run takes off? Do you chase or wait for something else?

The answer, counter-intuitively, is that being late pays more ... if you know what you're doing. 

I'll explain in five steps, starting with the need to understand prevailing "narratives."

To set the stage, you probably want to know if this advice works. I mean beyond the fact that I'm a professional investor, have a PhD, been featured in Time Magazine, etc. 

Here's your proof, as we've been using the following framework to inform 3 trading strategies and announcing all our positions daily with our followers for years now. In the image below our strategies are the top 3. They are our latest weekly results and feature how they've performed since the end of the last bull market (comparison data from Messari.io).

Image of performance results

Now I'll explain broadly how we achieve these results.

1 Know Your Narratives

The crypto space is too complex. Even professional investors, like myself, only manage with the help of teams AND by narrowing our focus.

In response to this overwhelming complexity, the market simplifies the information into "narratives," i.e., stories about what is happening and where things fit, but which leave out many data points. I'll give you three examples.

The L1 Narrative: Solana is part of the Layer 1 narrative—it’s a relatively good competitor to Ethereum (ETH) and most still think there will be more than 1 primary smart contract chain. Avalance (AVAX) is making a comeback as an L1 that's particularly well-suited for gaming. NEAR is the fastest L1.

The RWA Narrative: Chainlink (LINK) is the king in the Real World Asset narrative. The Boston Consulting Group identified $16 trillion in assets that are presently illiquid (trapped) and could be tokenized to achieve a wider market.

  • These are assets like the local mom-and-pop shops in your area. When they want to sell their business, who can they sell to? Usually, they have 1 or 2 possible bidders, which means they get less than they ought to and it's less likely that someone competent will buy.
  • Tokenizing such offerings allows for broader market discovery, which promises to fix the problem.

BlackRock, which is the world's largest asset manager, has moved into the space because they want to dominate this new market. They even want to tokenize traditional assets, such as stocks and bonds (Forbes article source).

To bring Real World Assets on chain you need oracles--protocols that reliably integrate that real-world data with the blockchain. LINK is the leader in this field and has a 6-year lead in developing a decentralized network of validators. This means it's safe, which traditional financial institutions such as BlackRock absolutely need, and competitors will not be able to copy that easily.

The AI Narrative: Render (RNDR) is actually a top coin in both the AI narrative and the Web3 Gaming narrative—it provides real access to H100 chips to train AI Large Language Models and to render video games. This makes it the only crypto coin that has a real utility for AI. As long as AI is a hot topic, this coin is well-positioned. But video games use rendering compute power too. This makes RNDR one of the only coins to appear in two top narratives this cycle.

Here are some key narratives in the current cycle (and we discuss this stuff for Free on 👉 our Discord Server 👈).

  • The BTC ETF Narrative
  • The Real World Assets Narrative
  • The Artificial Intelligence Narrative
  • The Web3 Gaming Narrative
  • The L1 Narrative

There are about 11 prevalent narratives at the moment that our community follows, but this should get you started.

2 Watch The Market

Your next step is to fill in those narrative categories. Use a Google Sheet or a piece of paper. It doesn't matter, just write it down.

You want to fill in the relevant coins in each sector by watching the market. Much is irrational about this market, so you don't really know which coins are going to have traction until you get some price action to support your views.

That Solana (SOL) was going to make a comeback in this market was unclear for some time. But recent history has shown otherwise.

I know you're worried that this sets you up to miss the runs, but after pumping for a while coins retrace. Look at SOL's price history.

an image of Solana's price performance

In those retracing periods, you could load up on SOL.  

Alternatively, you could use SOL as a lead indicator for its ecosystem and buy “down chain” coins on the SOL blockchain that are smaller, but move with SOL. That way, although you're late to the SOL trade, you can reliably make money on the SOL ecosystem.  

You simply need to build your watchlist with other coins that follow SOL when it pumps--coins such as RAY and ORCA for example.  

Still, you need to be careful with these other coins. After you identify follower coins, you need to classify them according to their maturity cycles so that you know what to do with them.  

3 Know Your Coin Maturity Phases

I have a short article on this idea that you should read (yes, 5 more minutes of your life spent reading). It's like I'm a professor with a PhD or something.

In brief, cryptos have 3 phases after they launch on an exchange.

  • Phase 1 coins are fine until the early investors (founders and venture capitalists) can unlock their tokens and then dump them on the market. For example, look at Arbitrum. You're good until you hit that big gray unlock period.Arbitrum's unlock schedule
  • Phase 2 coins have hit that unlock period and early investors are progressively selling their coins on naive retail traders.
  • Phase 3 coins have passed that unlock period and the early investors are done selling--there is little left to dilute new buyers.

As a rule of thumb, if you divide the circulating supply into the max supply you'll get a number. See below for LINK.

Chainlink coin dilution figures

If that number is over 2, you do not have a phase 3 coin--unless it has exceptional properties, like CRV, which is by its design a farm token. Even CRV is only the 3x range.

With your list, you need to catalog if your coins are in phase 1, 2 or 3. For example.

  • ARB is phase 1 and part of the Ethereum Ecosystem / ETF narrative
  • APT is phase 2 and part of the L1 narrative
  • LINK is phase 3 and part of the RWA narrative

Personally, I just drop all phase 2 coins from my watch list. You should be holding them only for a few days and I have better things to do with my time than stare at a computer screen.

4 Deploy Your Accumulation Strategy

Now we need to talk about mechanics for entering and exiting a position. The image below sums up most points.

****** Aside: I trade with something materially more sophisticated, but I want to give you a human executable lesson here. The principles behind this human executable idea are turned into an algorithm that I actually use. End Aside. ******

main-qimg-5ec029e79ed5f68c1573c716c9ed5b5a

First, you’ll note that I have a long-term trend line there using the Least Squares Moving Average at a 160-day timeframe. It's the big white line.

The LSMA 160 tells me that when the price is above that line, the trend is your friend, and accumulating makes sense. Our paid subscribers get data that's much better than an LSMA 160, but this will help you get the idea at play.

Next, you accumulate when the price is above the trend line -- but only after dips. I've identified a few dips.

Third, at the top is a consolidation range. Traders act on this stuff, which makes it a self-fulfilling prophecy. The idea is that after RNDR’s large pump, it would have to “break out” above that top line to make further money. You’ll see that on one day it did close above that range, and so traders kept on piling into RNDR.

At this point, you wait until it pulls back more and forms another consolidating range where you can start dip buying.

5. When To Sell

Paper profits aren’t worth anything. You need to sell.

One solution is to have pre-established sell and stop-loss targets. If you are trading a Phase 2 coin (read here) then that likely makes sense. Aiming for a 2 to 1 ratio in a strongly up-trending market would seem promising.

But in a crypto bull run you’ll end up trading out too early if you're looking at a Phase 1 or 3 coin (Lesson 1 of The Art of The Bubble). Most of the money is made at the end of the run.

Your goal is thus to sell when the bull run is over — which might be defined as when BTC drops below its 200-day simple moving average — or when your coin drops below your long-term trend line (e.g., the LSMA 160).

At this point having something more sophisticated will help you keep more of your profits, but even these indicators can get you started.

Concluding Thoughts

My hope is that you understand now why being late really can give you better returns.

If you try to jump in early, you're at significant risk of picking a coin that just does nothing or loses significant sums. Remember, most small projects die.

This approach positions you to capitalize on the coins in recently successful narratives. You probably want a mix of larger and smaller coins in each narrative, and there are certainly fine-tuning measures that result in better returns. But I've outlined the principles at work.

If all of that seems like a lot, we at 1.2 Labs offer data subscriptions here, and we have a professional team that does all that homework for you.

Beginning in December (for non-US citizens who have access to Binance, Bybit, or Gate.io) we'll offer copy trading. Join the waitlist here.

  • We're launching our Crypto Maxi strategy which has done 800%+ over Bitcoin since 2018.

Alright, I hope you learned something.

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 published an earlier draft of this essay on Quora here: https://www.quora.com/What-are-the-advantages-of-short-term-altcoin-trading/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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