Empire Building Thesis

Crypto Research | Games Research

Learn your own triggers before you try to learn the markets.

Contents

• Summary
• Approach
• Positioning
• Unlocks Thesis

Related:

• Incentive Design

Summary

Learn from experience via minimum staked experiments. Understand an error of process vs an error of outcome. Continuously refine your process as you gain more experience in the crypto markets.

Approach

1. Develop a robust investment process:
   • Document your trades and investment thesis for each position
   • Constantly update and re-evaluate your thesis as new information emerges
   • Think in probabilities, not binary outcomes
   • Have clear scenarios mapped out for different price movements
   • Set price targets and stick to them
2. Portfolio management:
   • Size positions appropriately based on conviction level
   • Take some profits when investments do extremely well (e.g. 10x+)
   • Maintain a diversified portfolio across different crypto sectors
   • Keep some cash/stablecoins on hand for new opportunities
3. Due diligence:
   • Do thorough research before investing, don't just follow hype
   • Pay attention to on-chain metrics and community engagement
   • Join project Discord channels to gauge sentiment and progress
   • Look for projects with real traction and product-market fit
   • Be wary of projects with too many dependencies or unrealistic timelines
4. Emotional management:
   • Recognize and be aware of your emotions, but don't let them drive decisions
   • Allow yourself to feel the full range of emotions, but respond rather than react
   • Have a support system or therapist to discuss your mental state
   • Exercise regularly to manage stress (e.g. heavy lifting)
5. Learning and growth:
   • Be open to changing your mind as you gain new information
   • Learn from both your successes and failures
   • Document lessons learned after each market cycle
   • Stay curious and continue educating yourself on new developments
6. Risk management:
   • Never invest more than you can afford to lose
   • Understand tax implications before engaging in trading/yield farming
   • Be extremely cautious with leverage
   • Have a plan for worst-case scenarios (e.g. exchange hacks, regulatory crackdowns)
7. Long-term mindset:
   • Focus on projects you believe will succeed over a 5-10+ year time-frame
   • Don't obsess over short-term price movements
   • Be prepared for multiple market cycles and extreme volatility
8. Network and community:
   • Build relationships with other investors and founders
   • Share your thoughts publicly to invite feedback and refine your thinking
   • Contribute to the ecosystem beyond just investing (e.g. content creation, mentoring)
9. Work-life balance:
   • Set boundaries to avoid crypto consuming your entire life
   • Develop interests and relationships outside of crypto
   • Take regular breaks to maintain perspective
10. Ethical considerations:
    • Only invest in and promote projects you truly believe in
    • Be transparent about your holdings and potential conflicts of interest
    • Consider the broader societal impact of the projects you support

Positioning

By incorporating these insights, investors can better navigate complex market conditions and make more informed decisions about when to hold assets, when to raise cash, and when to be more tactical in their approach.

Market Timing and Cash Management

• Consider raising cash strategically during market drawdowns, particularly when you believe you're about 70% through a drawdown cycle.
• Be cautious about timing cash raises, as markets can panic quickly and central banks may respond rapidly.

Market Environment Assessment

• Recognize that markets may be range-bound for extended periods. In such environments, consider raising cash near the higher end of the range.
• Be aware that markets can break out of established ranges unexpectedly. Have a strategy for when this occurs to avoid being caught on the wrong side of a breakout.

Asset Selection and Holding Strategies

• Focus on owning high-quality assets for medium to long-term stability.
• Adapt your strategy based on the market environment:
  1. In stable periods, focus on owning good assets and avoid excessive trading.
  2. In volatile periods, be prepared to be more tactical in your approach.

Macroeconomic Considerations

• Stay attuned to central bank actions, particularly as they navigate post-inflation economic landscapes.
• Be aware that central banks may be prone to easing monetary policy early to avoid hard economic landings.

Risk Management

• Develop strategies for both range-bound markets and potential breakouts to manage risk effectively.
• Balance the desire to capture low prices during drawdowns with the risk of further market declines.

Unlocks Thesis

Token unlocks can create significant short-term price pressure, but also potential buying opportunities for those with available capital and a longer-term perspective.

1. Token unlocks can put significant selling pressure on protocols, especially if there's not enough new liquidity coming into the market to absorb the newly unlocked tokens.

2. Early investors, particularly those from the previous cycle, may be incentivized to sell unlocked tokens to get above their "high water mark" and start collecting carry again.

3. Token Unlocks tracks the aggregate number of token unlocks happening per month or week. It would be insightful to overlay this data with stablecoin inflows to gauge market absorption capacity.

4. Potential strategy: bid on protocols after unlocks have occurred and selling pressure has subsided, rather than trying to time the bottom.

5. The speakers noted that projects with upcoming unlocks have vastly underperformed, as there's often little buying interest or liquidity for these tokens.

6. They suggested that analysts should add indicators for when token unlocks start on price charts to better visualize their impact.

7. The example of Arbitrum (ARB) was given, where the price dropped significantly after a major unlock event.

8. The speakers emphasized the importance of having cash on hand to take advantage of opportunities created by unlock-related price drops.