At $DIGITS DAO, we produced a $1,416,358.63 RFV gain in Q1 of 2023 with a starting capital of $2,691,883.28. This is a solid 52.61% gain in just one quarter.
So, how did we do it?
What strategies did we use, and what strategies do we see working further into 2023?
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This is really useful when looking back to determine the types of strategies that worked monthly or quarterly to determine which strategies have the highest probability of winning in the future. 3/54
I highly recommend you track your trades in this way or another, so you can also look back and see what's worked and what hasn't frequently. So, what do we see winning as we enter further into 2023, and what strategies do we consider high risk? 4/54
Looking at data is important, so let's pull up some recent trades as examples. 5/54
In January, we can see that it was a relatively slow month with fewer positions opened than usual. Our biggest winner, $BIT, contributed 50% of our total RFV gain this month. As a concentrated high conviction bet DAO, this is pretty normal to see.
Why did it work? 6/54
Information Asymmetry: $BIT was a case of seeing an inefficiency in the market through public governance, finding this information before everyone else, and smashing the buy button hard. This strategy of information asymmetry we see working well in the future and beyond. 7/54
It's something that presents itself in bear and bull markets alike on rare occasions and is always, in my opinion, high risk to reward. If you're a gem hunter, on chain analyst, or governance sleuth this is your bread and butter. 8/54
Before you read the rest, please bear in mind: This post is not about a specific ticker; it is an analysis of our trades and the ones which have succeeded and the ones which have failed. I am using the ticker as an example. 9/54
Dip Buying On-Chain Strategy: At this time, we attempted to put a long on $FOLD, a token we have over and over again tried to long. It was said that there would be a partnership with Sushi Guard coming soon and the APR of staking with FOLD could get as high as 80%. 10/54
Unfortunately, this team is riddled with delays and, at the time, had unstable management, so even if they had delivered in the future, we deemed it risky to hold. 11/54
FOLD is a token that, even if it goes up, is something that we, in my opinion, should never touch again. We have tried to long it over and over again, suffering paper cuts, slippage due to price impact in and out, and deadlines being moved and visions being changed too much.12/54
When you see a project and team being relatively unstable, constantly moving deadlines and the bar, and not providing clear timelines, it's not a good thing for a swing trader (us) because timing is very important in trading. 13/54
We are not investors, so trying to trade a token in and out can become a challenge when the team is changing dates on you constantly. 14/54
I want to make it clear that our style of trading is different from investors who are happy to ride volatile price action for a chance in the future that the protocol works out. We don't do that. 15/54
We also found FOLD to have heavy bag holders ready to dump at any green price action. This makes securing multiples very hard. You can view this pattern of pain on many alt charts; not to pick on FOLD, it just happens to be an example that has constantly caused me pain... 16/54
The pattern looks like an M with lower highs constantly being met. As price comes up, bag holders in pain will induce selling pressure on any good news to get out and rid themselves of the token that has tormented them. You can see it occuring on most time frames. 17/54
It's nothing new; it's just human nature to want to get rid of the bag that's kept you up at night and ruined your emotional well-being for months. 18/54
So, what did we learn from FOLD: be careful of teams that constantly miss deadlines, unstable or overtly abusive team members, or those that seem to pivot, especially if they are not delivering to token holders. 19/54
Also, be aware that in a bear market, buying a chart which has already had a few run-ups is increasingly risky as bag holders look to exit on large pumps. 20/54
Questions to ask yourself for dip buying:
1. Has the token had run-ups before, and who is holding this bag looking to exit on the next run-up?
2. Is the team communication good? Are they updating their investors frequently, does the community have a positive vibe? 21/54
3. Has the team delivered on timelines before, or are they generally late?
4. Is the roadmap being followed, or have they continuously changed direction?
IMO, dip buying old on-chain coins will be increasingly risky in 2023 and should be avoided. 22/54
I don't mean to pick on FOLD; the same thing happened with our NFTB and TETHYS swing trades this month. Both old coins couldn't swing, had no follow-through, and closed for small losses or scratch. 23/54
Farming:
At the same time, we entered a $GRAIL genesis farm with our ETH-USD. We can see that over three months, this farm, including a little top-up of grail to boost it in the beginning, produced a hefty 300% gain this quarter. 24/54
This is partly due to the APR, which was 200%-300% at one point, ETH appreciation, and GRAIL number going up. 25/54
Farms that last are rare, but when you catch one or can rotate frequently between them, you get some amazing gains over time. This is not a strategy where you will make 300% in a week but rather a slow and steady drip over time. 26/54
I expect much chop/sideways for the next quarter and even leading up to 2024. With this overall bias, farming plays a crucial part in our portfolio. When things go sideways, why not get paid to wait for the market to enter another bull cycle? 27/54
I like putting assets I want to hold to work, and as we have seen with a 300% gain on our Camelot farms, this is a profitable strategy in 2023. 28/54
When you're checking out new farms, it's essential to find out:
1. if they are using audited tech or are audited themselves,
2. how many partnerships they have with other good protocols,
3. who is on the team and if they are doxxed, 29/54
4. if the tokenomics of their farming token make sense, so the yield can stay relatively high. 30/54
A new farm I'm excited for is @ChronosFi_, which IMO fits all of my criteria. They have partnered with some of the biggest protocols, including @fraxfinance, which is not an easy thing to do. 31/54
They continue to update the community with more partnerships and news, have solid tokenomics with a twist to keep token price up and APRs looking good, and although the team isn't doxxed, the code they're using is audited and undergoing more audits, which IMO makes it safer 32/54
New On-Chain Projects:
New on-chain projects have been our most profitable trades for 2023 because of two main factors:
1. We are generally early to new narratives.
2. We know how to analyze a team, their docs, tokenomics, and make sure there is lower risk. 33/54
3. We can get in at a low market cap and valuation by taking a bigger risk, being early without confirmation the product works, etc., before people get comfortable.
4. There are no old bag holders in pain waiting to dump their bag on your face. 34/54
New projects can mean a seed round, private, public, getting in right at launch date super early, or simply buying something that hasn't launched yet like Bera Chain NFTs @berachain. 35/54
We've had the most success this year with our Bera Chain NFTs appreciating in value as the team continues to communicate well with their community, and the community continues to spread the word about what's being built. 36/54
This is by far our best trade from 2022-2023, and I believe it will continue to be as we get closer to and into 2024. 37/54
It's a good product, can be speculatively quantified so we know our risk and potential reward, has a solid roadmap and good tech, and boasts an amazing community and good communication from the team. It checks all my boxes and more. So we keep holding most of our collection 38/54
$PSI and $WINR were two public sales that worked out really well for us. We identified these projects while the narratives were hot and saw that the FDV would be low at launch, so we played them for a swing. 39/54
This get-in, get-out style on launches is something we like to do a lot. Sometimes we cut the trade too early, but a lot of the time, this protects our gains, and we continue to be profitable over time due to this in-and-out nature. 40/54
What did we like about PSI and WINR, and what questions should you ask yourself before entering a private or public sale?
1. What is the FDV? If it's already going to be at 50mm FDV at launch, who's going to buy it from me? 41/54
2. Is there enough interest in the raise, and will there be people who miss out? People who miss out are the best; you need a raise that is hyped and people who either didn't see it or couldn't get filled to buy your bags. 42/54
3. What's my vesting like? Is there enough coming to me that I can at least cover my risk, or do I think this has staying power?
4. Is the team doxxed, do they have audits, or who are they partnered with? Not just which favorite influencer likes them. 43/54
Dig deep on this one; it's especially important for rug detection. Sometimes you can try your best to be ahead of bad actors but still get hit. I still get hit. 44/54
We got hard rugged on the Raisensu pub sale this month, but when you look at the profitability over the quarter, winning on things like $PSI and $WINR, this strategy is still worth the risk. 45/54
But what if you can't get in the sale or it's a stealth launch? You can still be early if you can't get in a sale, but you need to be mindful of pre-salers, their lock-ups, what multiples they're at, and who can dump on you. 46/54
Buying post-launch is often profitable in a bull market but has less risk/reward in a bear market as there's likely less follow-through. 47/54
This can work in new narratives like our $ZERO trade, but it can be detrimental when a private sale has no lock-ups and an instant dump, like $SATIN. Just be extra careful, especially if not in a bull market, doing this. 48/54
You'll see on our sheet an increased allocation to VC positions. This is due to our past experience this year, seeing this strategy work far better than other trading strategies. With limited capital floating around on-chain, it's more important than ever to be early. 49/54
We're looking forward to the $GND and $GRAIN launches, which we participated in, both having great, renowned long-term teams with visions, large communities, communicative mods, and well-run protocols. We feel very confident in these investments. 50/54
We're also looking forward to a new risk to earn GameFi protocol @etherwars_ launching this quarter. We incubated this project so had our input from game mechanics, tokenomics, launch, FDV etc. Tokenomics and sale are non-predatory with some flywheel mechanics I'm proud of. 51/54
You can see on our sheet we're already practicing what we preach, with a larger portion of our capital in farms and VC (I also include Bera Chain NFTs in this category, although they still sit in NFTs). 52/54
We will continue to migrate more capital to these VC and Farm categories moving into 2023 and think this will further increase our profit moving forward. 53/54
I hope this was a helpful thread, and if it was, let me know in the comments, and I may do a quarterly review like this every quarter if there's enough interest. 54/54