Information Flow & Investing Frameworks in Crypto
Nancy Pelosi (and her husband Paul) have a phenomenal investing track record, massively outperforming the stock market and professional hedge funds with “bold and risky” bets that have skyrocketed their estimated net worth to roughly $135M, the vast majority of which came after 2008.
This is the power of information.
In the case of Nancy Pelosi and many other politicians, it’s blatantly obvious to the rest of the world what’s going on: insider trading, or the use of non-public information to gain an unfair advantage in the market.
So how does this grift work?
Nancy feeds her husband non-public information gleaned from her position in congress who makes trades accordingly, and additionally works to push for legislation that directly benefits or subsidizes the companies they have invested in.
Quite the tag team.
We’re not here to whine about, or bash Nancy Pelosi. She’s far from the only politician who is scrutinized for this.
The whole point of this example is to emphasize the power of information. Nancy and Paul are not savant investors. They just have the ability to front-run the markets based on non-public information.
Investing is easy when you have high impact information the rest of the market doesn’t.
Most of us don’t have the luxury of having insider information, let alone the ability to trade off it with impunity.
But that’s okay.
We can still benefit from public information.
It just requires us to be either smarter or faster than the rest of the market.
Ideally we want to be both.
We’ll come back to this.
Where can we get market moving information from?
Twitter: Fast information, but very noisy with a lot of bad information as the algorithm rewards loud, polarized opinions.
YouTube: Slow information (takes longer to produce a video than a tweet), very noisy, algorithm rewards polarized opinions. Can be good for learning and understanding topics and concepts at a deeper level, or just keeping up with general news.
Discord: Joining and participating in the right Discord communities can be a gold mine for finding opportunities and learning. Discord is also hot-bed for scammers so be careful. You can also look to build personal relationships with people you meet in Discord communities, which can be very valuable.
News sites: Sites like CoinDesk, CoinTelegraph, and DeCrypt can be decent sources of general crypto news and information, but they are going to be slower than Twitter, and these sites may be biased.
Telegram: Telegram is great for small alpha groups and keeping in touch and communicating with people individually. The longer you spend developing relationships in the crypto space, the more your network will grow.
We can classify information based on its potential impact on the market and the speed at which that impact occurs.
Some information, like a company beating earnings expectations, hits the market with a high impact and the market reacts quickly to the news.
Other information, like the BTC halving, has a high impact on the price of crypto assets but takes time to play out.
I created a diagram to better illustrate this:
Inconsequential information doesn’t move the market. It’s just distracting noise. Actively remove it from your information flow.
Anything that includes a price target, unless backed with significant analysis, can usually be disregarded as noise.
For example, the twitter accounts that are constantly giving insane price predictions (up or down) should be blocked. Yes they will occasionally be right by happenstance (that’s the game they play) but you aren’t missing anything.
An example of this would be a big influencer on Twitter or YouTube, or even an analyst from a big bank, posting absurd price targets for Bitcoin. Any news that does not significantly shift the fundamentals of an asset can generally be disregarded.
So we remove the noise. But what about the good information?
Most people will want to focus on the top right quadrant of our diagram. High impact information that takes a longer time to play out. Acting on this type of information usually requires discipline and patience rather than speed & skill.
For example, accumulating strong coins in a bear market 6 - 9 months before the Bitcoin halving and looking to take profits in the bull market. Everyone knows when the Bitcoin halvings are, but the market still takes a long time to price them in.
On the contrary, scheduled information releases such as earnings reports, CPI data, jobs reports, rate hike decisions, etc. cause fast, sharp reactions in the market. Everyone get’s the data at roughly the same time, but those who are faster at reacting to it can make money.
Without advanced strategies using automated bots it is not recommended that you trade on this type of information, as you are competing against people who have systems in place that allow them to be faster than you.
Speculating on high impact probable information on the other hand can be quite profitable. This is where a project is expected, or rumored to give an announcement that could be bullish.
An example of a speculated announcement would be Polygon announcing a partnership or integration with Amazon or another large company, as they have already partnered with so many big names. One could buy MATIC while price and attention are low, with the plan to sell it after a large partnership announcement.
In this example, the outcome is very similar to having inside information, we just weren’t 100% sure about the outcome. But by doing research we can increase our chances of being correct.
Half the battle of being fast is looking in the right places to begin with. In this example, we were better than fast. We got in before everyone else did because we did research.
Next we have surprise information. High impact information that randomly hits the news waves can be extraordinarily profitable to trade IF you are fast to act on it AND have a solid understanding of how the market will react to it.
The key to profiting from surprise information is to set up solid information flow channels, let the information come to you, do not force it, and only act on the top 1% and only when you see the information early (before the rest of the market reacts).
For me this means browsing Twitter & Discord every day, multiple times per day. Keeping a pulse on the market. This may seem inefficient, but if you optimize your information flow channels to weed out bad sources and only follow good sources, it doesn’t take much time.
Here are two examples of how reacting correctly to surprise information can be extremely profitable:
Renowned DeFi developer Andre Cronje of Fantom published and tweeted this blog post late one night in November 2022. Within that blog post, there is a snippet outlining the current financial of the Fantom Foundation, which explains how Fantom has 30 years of runway.
In the midst of a bear market, this is a massive piece of information. While many crypto projects & businesses have been going out of business for months, Fantom claims to be so cash-rich that they have 30 years of runway.
$FTM moved 47% to the upside over the four days following this blog post despite the bear market conditions.
In order to take advantage of this information you had to know who Andre Cronje is, follow him on twitter, see the blog post he tweeted out, click on it, read it to the bottom, and understand the significance of this information and that the market had not priced it in.
Without the proper information flow setup and framework, you would 100% miss it. With the proper setup and framework, there is still a large chance you see it too late, but more opportunities always arise for those who are paying attention.
On December 15, 2022, Donald Trump surprise announced a collection of 45,000 trading card NFTs.
No one had the drop on this. There was no whitelist, Discord, or other lead up to the announcement. Just a cold launch that caught everyone off guard. But it was a fair launch.
Anyone (in the US) could mint up to 100 NFTs for $99 each. Throughout the day, the floor price stayed around or below the mint price, meaning people from other countries could have accumulated for mint price or below.
Instead, most people completely faded one of the most obvious, easy wins of the 2022 bear market.
The collection took a full 12 hours to mint out, then blew up over the next few days and at one point reached a floor price 10x above the mint price.
This is where it pays to be smarter than the rest of the market. You didn’t have to be super fast. You just had to realize the Donal Trump NFT collection was going to rip before the rest of the market realized it.
How can you be smarter than the rest of the market?
By creating and following frameworks. And using common sense. And by actively improving on your investing education and literacy (investing IQ).
And to be honest, it’s not difficult to be smarter than the rest of the market if you’re patient and wait for the right circumstances.
This is meant in the nicest, and least arrogant way possible: most people are dumb, lazy, or otherwise unfortunately lack educational resources.
No seriously. Most US adults read and write below a 6th grade level. This is just the truth. It is not meant to be derogatory or look down on others. It’s simply meant to paint an objective picture of the competitive landscape.
By creating and following some basic frameworks and actively focusing on your investing literacy (education) you put yourself miles ahead of the majority of the market. You immediately give yourself an edge over the dumb and/or lazy people.
Literacy rate and education are tightly correlated to wealth. Focus on your investing literacy.
Frameworks are preset criteria that allow us to make quick and objective investment decisions. They can be flexible and change over time as we get smarter or as the market changes. I will be adding some various frameworks for things like NFTs and tokens to the principles section over time.
The Donald Trump NFT drop was an obvious winner because it met some key criteria in our framework for NFT launches.
Not an overhyped launch ✅
Injection of capital from non-crypto sources ✅
Reasonable launch valuation ✅
Massive reach ✅
Frameworks can also help you remain unemotional. Many people missed out on a massive opportunity because they hate Donald Trump and wanted the project to fail and do poorly.
This is an easy example of bias getting in the way, but it also happens with other investments. On the bull market people were turning down $400k+ offers (enough to buy a house with cash!) on NFT pictures of apes because they were emotionally attached to the investment. Bored Apes then slipped down to a $50k floor…
Eliminating bias and remaining objectively focused on what the data points say is extremely difficult. With proper frameworks in place, it becomes much easier to ignore emotions.
A project’s fundamentals can look incredible.
Great team, great product, great use case, great marketing.
But maybe the tokenomics are extremely bad with heavy inflation and VC unlocks.
Or it could simply be overvalued due to a raging bull market (BAYC at $400k+).
Having a framework that takes these things into consideration will help disqualify investments and keep you from losing money.
Often times markets take some time to interpret and digest information. An example of this would be the announcement that DeGods would be moving to Ethereum.
Initially, many DeGods holders sold their DeGods because they reacted emotionally. Fear, frustration, and an emotional attachment to the Solana ecosystem drove them to make a terrible investment decision.
Proper frameworks help point us in the correct direction while the rest of the market is confused. We can take advantage of this confusion by acting with conviction according to pre-built frameworks.