As the year comes to an end, I reflect on the mistakes I made over the past year and summarize them into a few lessons learned.

Sharing these is not only a reminder for myself but also a reference for others.

The truths are quite simple, but only through losses can one truly understand.

Just like the moment your position blows up, you regret why you opened such high leverage.

1. A Paradise for Speculators, a Graveyard for Investors

Hedge fund manager Hu Meng has a very precise definition of investment and speculation:

“If your returns depend on the price difference of the same asset at different points in time, that is speculation. If they depend on intrinsic value increase and dividends, then it is investment.”

In the first few years of my involvement in the crypto space, I was purely a BTC holder and achieved decent results.

This strong positive feedback led me to seek a type of “investment that allows me to sleep well” for most of my time in the crypto market.

This is the sense of security brought by so-called “value investing.”

I looked at teams, white papers, and fundamental data, trying to find assets I could hold for one or two years.

The so-called TVL, active wallet addresses, and trading volume, seemingly detailed data, were the best sleeping pills for me to hold my assets.

But this is not much different from the BSC meme players who buy and hold assets based on CZ or heyi's replies.

I went to sleep with data that might grow today but could go to zero tomorrow.

They went to sleep with expectations based on celebrity effects.

I am no better than them.

The reason is that the crypto market has never been priced based on fundamentals.

• In a bull market: Emotional pricing may account for 60%, chip structure for 30%, while so-called “fundamentals” only account for 10%.
• In a bear market: Emotional pricing accounts for 40%, chip structure for 50%, and fundamentals still only account for 10%.

We are in a market where behavioral finance is overly effective, and the pendulum effect of emotions is very obvious. In such a market, speculation is much easier to profit from than investment.

If it were only this, the crypto space's value investing would not be so far from the word “graveyard.”

The most terrifying aspects of “value investing” are twofold:

1⃣ When you deceive yourself by buying a coin from a value investing perspective.

When it drops 10%-20%, you comfort yourself with “the market is foolish, everyone is drunk but I am sober, spot won't be afraid,” you won't stop loss, you might even want to add to your position.

When it drops 50%, you vaguely realize you might be wrong, but because you've already lost too much, you are reluctant to stop loss.

When it drops 90%, you silently transfer this coin to a rarely used wallet. The next time you see this coin rise 100% in the group, you realize you need it to rise tenfold to break even.

2⃣ When your initial motivation was to speculate on a coin, and after losing, you switch to value investing:

When it drops 10%, “This coin seems to have hope, waiting for a big player.”

When it drops 20%, “I am actually value investing; this price won't lose too much holding spot.”

You know the story that follows.

So how does money disappear?

I actually saw this principle a long time ago, but I only understood a bit after experiencing GMX, DYDX, JUP, MET, PUMP, CLANKER, and BONK.

2. All In During the Foreplay, Stop at the Climax

Regarding position management, GCR has a principle that many people have overlooked, yet it is extremely important:

“In the altcoin cycle, you should maximize your risk exposure when the trend just reverses and gradually protect your capital over time.”

This is contrary to most people's intuition.

I have made this mistake countless times over the past two years.

AI Agent Market

Last year, when the AI meme season just started, I participated with small positions in goat, ai16z, and other meme assets, achieving decent multiples but average absolute returns. Then, as swarms began, my friends started making hundreds of thousands of U, and I began to increase my betting scale. I started to incur massive losses. I think many people are like me; without the later TRUMP, the returns might not even outperform BTC.

The TRUMP at the beginning of the year saved many lives; originally, most people's fate was to start swimming naked after the AI agent tide receded. But TRUMP emerged just as the AI agent began to decline, giving many people the opportunity to retreat quickly, transitioning from AI meme to TRUMP to exit.

BSC Market

In September, I, who had basically stopped playing memes, happened to see CZ's tweet about 4 that afternoon. I bought 4 BNB for several million and didn’t pay attention afterward, leading to the magnificent BSC market. I belatedly missed the opportunity to increase my position and was forced to use the profits from 4 and funds brought to the chain to buy into Binance life.

In hindsight, if I had increased my risk exposure early on, I would have been much more adept in whatever I did later. Even if I was wrong, the losses wouldn't have been significant.

Most of the time, our instinctive reaction is:

• When the market just starts, the future is uncertain, so we should wait and see;
• When the market is booming, consensus is established, so we should go all in.

Because when the trend just reverses, the market is still shrouded in the trauma of the previous bear market, and all “stories” sound like scams. But at the peak of the market, the story has become flawless, and consensus has reached its peak.

However, from the perspective of odds, the facts are exactly the opposite:

• At the initial emergence of a trend (reversal point): Although full of uncertainty, the odds are highest, with limited downside, making it worth placing heavy bets for returns.
• At the climax stage (consensus point): Although it looks “stable,” the price has already overdrawn future expectations, and the downside risk has greatly increased. What should be done at this point is to “stop” rather than go all in.

3. Beware of PE and Buyback Burn Traps

All PE and cash flow valuation methods have one major premise: that performance is sustainable in the long term.

But from the birth of BTC until today, nothing has been sustainable except BTC.

The leaders in all sectors have changed once. If you look at the Top 10 list on CoinMarketCap from five years ago, you will find that more than half of the names have become unfamiliar or even gone to zero.

In the PERP sector alone, the leading positions have shifted from DYDX and GMX to Hyperliquid.

Moreover, countless sectors have been disproven. Most projects do not survive for more than a year.

PE valuation and buyback burn have been the most painful investment experiences for me. This is very similar to what was discussed earlier about “value investing.”

When some projects are presented to you at 5x or even 3x, it is really hard to resist buying.

Because I still hold onto a bit of hope, I can only say to beware of the PE trap, but I believe many people can completely avoid this trap.

As for me, I feel I haven't lost enough, still holding onto some hope for the industry, so I’ll stick around for another year.

Finally

The lesson humanity learns from history is that it never learns from its lessons. A recent article by 0xPickleCati made this very clear.

Some pains cannot be understood and distilled into instinctive reactions unless experienced personally.

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