State of the Market (10/01/23)

By Todd Mei PhD | State of the Market | 1 Oct 2023


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Hello Bubble Riders!

This is the first of three newsletters I’m going to write about UniBot because I am now confident that such bots are changing the way (non-institutional) investors will trade in the crypto landscape going forward. To explain the impact of these bots, let’s start with a success story.

Friend.Tech is a crypto protocol that has been so successful it’s driven up Base’s adoption (Base is an L2 on ETH) to levels approximating established players in just one quarter.

Why?

Because people were making ridiculous sums “flipping” access keys on Friends.Tech. Infamously, the top flipper accrued some 260 ETH in 3 days, which is better than $2m. He (and his team) did it with a bot.

For some time only specialists could do this, but UniBot has now democratized the process. Since it's a multi-purpose bot, you can use it for many similar projects.

I’ll explain the strategy with Friends.Tech “keys,” but you need to know some background information first. To begin, what is Friends.Tech?

It’s a Twitter add-on (no, it’s not X, everyone still knows it as Twitter despite what Elon decided to call it). Friends.Tech allows people who follow you on Twitter to gain access to a private feed that runs on the blockchain (I give people trading alpha in my channel).

In order to get access to that feed, people need to buy “keys” to your account. Those keys additionally function as shares in your social media profile. As more people buy keys, the cost of new keys goes up. If you are an early holder of a popular account, you’re likely to make large sums.

A final background point is that the whole Friends.Tech platform runs on Coinbase’s L2 called Base. Base is a Layer 2 (L2) protocol like Arbitrum, Optimism, and Matic, but it’s even cheaper and faster to use–which matters for this strategy.

Here’s how key flipping–also called key sniping–works.

  • You set your bot to scan for new “keys” for Friend.Tech on the Base blockchain.
  • The bot then searches the chain to see if anyone is buying new keys. Call this person Buyer A.
  • If there is a Buyer A, the UniBot submits in a purchase order at just under price of Buyer A but ahead of Buyer A’s order itself.
  • The bot can do this because it pays more in gas fees to jump ahead in the line of blocks to be added to the blockchain (which would be a problem on ETH, but not on Base).
  • If everything works out, you buy a key that is immediately more valuable than your purchase price because Buyer A just bought it for more money than you did (setting a higher market value).
  • To profit, you now turn around and sell that key at the new higher value to the next person wanting to buy it. Let’s call that person Buyer B.
  • Pocket the difference.

The core point here is that to make money you need another buyer (Buyer B) after you snipe your first key. That’s why speed matters. The first people to buy new keys are very likely to be able to sell them again to later buyers–if only for fractionally more than the purchase price–because most people on Friends.Tech get at least 3 key buyers (I had a dozen within my first 2 hours).

Gas fees thus need to be low to make key-sniping profitable–which is why this works on Base. A similar competitor cropped up on Arbitrum (ARB), but I don’t think it’ll be as successful, since ARB typically charges more per transaction and these are low margin trades.

Now, to make millions doing this, you just need to repeat the process 177,000 times. That’s how the team that earned 260 ETH in 3 days did it. Fortunately, it’s a bot, so you can tell it to run the strategy while you sleep, or eat, or poop (while checking Twitter) and it’ll make you money until you tell it to stop.

Of course, there are now many people trying this strategy at Friends.Tech, so we need many more people to onboard if you are going to make millions this way. It could happen in a bull run, so it’s a great strategy to keep in mind, but you’ll probably make better returns by applying the technique to newer offerings.

Where do you find those? Everywhere you can find an airdrop!

That’s right, any new offering that has this characteristic is likely to make you money and almost all airdrops have this characteristic. Also, airdrops happen all the time.

Now I think you understand why you’ll want to learn how to use UniBot: you’ll be able to use this sniping technique almost continuously once you get the hang of it. Here’s a link that will save you 25% on all your UniBot transactions (click here).

I’ll be covering this strategy in 2 more newsletters. For paid subscribers (DIY-er and up) I’ll upload walkthrough videos to make this clearer. For this week, I think we’ve covered enough to motivate you to try learning this stuff.

Happy Trading!

- Sebastian Purcell, PhD


The Macro Situation

soft landing (noun):

  • what only ducks can do;
  • when economic models cushion themselves on the backs of workers.

― New Entry in the Updated Devil’s Dictionary

GDP for Q2 was up 2.1%, and jobless claims have slightly increased while average hourly earnings (one of the Fed’s favored indicators) increased modestly by 0.24% compared to August.

In short, a strong and stable economy turns out not to be so encouraging for markets. At the close of September, major indices lost between 3% and 5%. Interest rates, rising oil, and the threat of a government shutdown are to blame.

Higher for longer interest rates have finally eaten away at the price of Gold, which has slumped to a 6-month low. Accordingly, GLD closed at 171.45, which is an 11.1% decline since its recent peak on May 4, 2023. The US dollar index remains robust at 106.17.

But a soft landing may still be on the horizon. The spread between the 10- and 2-year bonds has seen more narrowing:

One thing to bear in mind: the prospect of a US government shutdown would not only be bad for the economy, but potentially affect the way economists can track inflation data.

At the time of writing, it looks like an 11th hour deal might come together--which would likely bring a relief rally (even if a small one) to the market.

-Todd Mei, PhD and Sebastian Purcell, PhD


AI Sentiment Report

The following sentiment scores use ChatGPT as part of the AI tech stack to track sectors as leading indicators. (Lesson 4 of The Art of The Bubble covers the selection of lead indicators for bubble trades). The scores are most indicative for the next day of trading (a Monday), but they appear to set the general tone for the next week.

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The methodology employed is based on this peer reviewed academic article, which produced 550%+ results in back tests over a 2 year time frame. We consider 4 and 5 scores to be positive, but please bear in mind that the AI model is still in its validation phase.

-The Research Team:

Dom Viera, Samantha Russell, Nicole Zinuhova, Aiza Malik

Happy Trading!!

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Our subscriber plans make use of the same base algorithm that our hedge fund, 1.2 Capital Management does, but modified in timeframe so you don’t have to stare at your screen all day.

We have two primary data offerings in cryptocurrencies: (1) AOTB Dynamic and (2) the Crypto Maxi. Here are our returns with comparisons to others (data from Messari.io).

2TrJ34imvwWnTJczRDyQMd Upgrade to Paid Disclaimers

This newsletter 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.

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Todd Mei PhD
Todd Mei PhD

Todd is a former Associate Professor of Philosophy with over 16 years of research experience in the philosophy of work and economics. He is currently the lead researcher and writer for the Web3 consultancy group, 1.2 Labs.


State of the Market
State of the Market

Weekly reports on the state of the macroeconomy, stocks, and crypto compiled by the 1.2 Labs Research team.

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