How to Make it in Crypto

Level 3 - Virgin DeFi Analyst

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We have a diverse group of over 40,000 readers here at DeFi Education ranging from beginners with smaller portfolios to whales and institutions who have been in the game for over a decade. What you do onchain and how you interact with crypto changes as you increase your personal Assets Under Management (AUM). Investing is not only about making returns, but keeping them over a long period of time. As you increase size, you need to be able to adapt your strategy to continue to capitalize on good opportunities.

Today we will talk about how you can “make it”, or at least increase your overall portfolio in crypto.

There are generally two approaches to advancing your portfolio in crypto.

• Option 1: Focusing on a high “win rate”, aggressive profit taking, and breaking up your portfolio into smaller more manageable sizes.

• Option 2: Heavily concentrated bets looking for 2x+ multiples, holding through volatility, and compounding with size.

Portfolio Size: Non-existent ($1K-$10K)

In this size range you absolutely want to have a job or business that generates recurring and predictible cash flows. You are likely on the younger side and just starting out your career. A few thousand dollars a month in cash flow is going to add real tangible value to your portfolio. If you’re in this range and don’t have a cash flow stream, spend the next few months on increasing cash flow to a point where you can keep adding new capital to your portfolio. Aim for roles that leave you with at least 4-6 hours a day to spend on crypto outside of work.

This isn’t really even a portfolio at this level, so your goal should be saving and investing so you can generate enough “at bats” to make a difference through trading.

At this portfolio size you shouldn’t care about being in majors like BTC, ETH, etc. because it’s not going to move the needle. Instead you are going to have to participate in the riskiest, most value extractive ares of the crypto ecosystem and try to find an edge: The Trenches.

"The Trenches” refers to trading smallcap tokens onchain with the hopes of multiplying capital. Currently, these include:

• New pairs on Solana, typically (but not always) launched via PumpFun

• New pairs on Base, current focus being the Virtuals ecosystem and other AI

• Select opportunities in other ecosystems (Ethereum mainnet, L2s etc)

Past examples include:

• NFT mints on Ethereum

• Farming L2 coins

The Trenches are not static. Markets are always evolving and capital in crypto rotates as old narratives reach exhaustion and new ones catch fire. You want to keep an eye anywhere onchain where there a large number of participants actively trading.

In our view, if you have such a small portfolio you can’t afford to be a “bulliever.” You need to aim for small multiples, pull principal + some profit quickly, and minimize drawdowns as much as possible. Do not drink the koolaid on anything. Do not worry if something you bought goes up another 10x after you sell. Focus on compounding your capital because you can still be zero’d at this stage.

The less you have in recurring cash flows, the more aggressive you need to be about taking profits and getting in and out of trades quickly. Blow up risk is far too real at this stage. Activities like farming are usually not worth it because farms nearly always favor those with larger portfolios. Your best bet is trading tokens that are sub-$10M market cap and do a 2x or more.

Remember: Your goal is to not lose principal. Leave the home runs for later. 99% of tokens die. The odds of your token going to zero are much higher than it going 100x. Since your blowup risk is high you can’t afford to be a dreamer, yet.

Portfolio Size: Tiny ($10K-$30K)

Not too different from the strategy above. You will have to grind new launches and take profit quickly. On the upper end of this range you can allocate 10-20% of your portfolio to “moonshots” and higher conviction, slower developments that can do multiples while trading with the remainder of your portfolio.

Portfolio Size: 5-figure Hell ($30K-$100K)

As your portfolio increases in size you can start allocating capital from the very short-term opportunities that you’re only in for 1-2 days and get more comfortable holding for a few days up to 1-2 weeks. You should still aim to take profits aggressively with most of your portfolio until you start approaching 6-figure hell. Your portfolio is still too small to start thinking like an investor, and farming is still unlikely to be worth it if you’re trying to multiply your portfolio size.

Conclusion? More new token launches.

The big shift in 5-figure hell is you should start getting a feel for higher market cap new launches. These launches are what people refer to as the “Runner of the Day”. In essence, this is the best token launched of the day that has a strong narrative and attention capture. Usually it hits $10M market cap on the same day at a minimum (peak market cap can vary significantly based on market conditions though). Ideally you can start finding coins in the $1-$2M market cap range that run to $5-$10M, making sure to take out initials and profit on the way and continue to take profit progressively on the way up. Leaving a “moonbag” of 5-10% of your total investment after you’ve taken initials can start to make sense as you now have enough capital to chase other new opportunities.

Portfolio Size: 6-figure Hell ($100K-$300K)

You are officially at a size where you can get decent dollar value gains holding large caps like BTC, ETH, SOL etc. If you can 3x your portfolio from $300K holding large caps by the end of the cycle you’ve almost made it to a million!

Liquidity on new pairs can start to become a bit of an annoyance here if you’re getting in very early to microcaps. You want to focus on higher quality trades you can put low 5-figures into (e.g. the “Runner of the day”) as opposed to trying to flip $1-$2K on sub $1M market cap coins. Your experience in the trenches grinding up your portfolio from nothing should give you a much better sense for what narratives work well in the crypto market.

During this phase the losses start to hurt a bit more since it’s real money (losses of $5-$10K cover real expenses), and the wins start to feel euphoric (you can make multiple months of salary). Eventually though you adjust to the sizing.

Portfolio Size: Mid 6-figures ($300K-$1M)

You essentially have to put a complete stop to gambling and flipping micro caps and be far more selective on your positions. This is the portfolio size where you will start asking yourself “what is my edge?” more often. Are you early to the trade? Have you learned something in your research and digging that the rest of the market hasn’t? Do you think the coin is oversold relative to the project’s underlying strength?

Holding medium to longer term positions becomes necessary. New pairs become less attractive. Being able to catch the daily runners can continue to provide a meaningful boost to your portfolio, but it can quickly turn against you and you can get punished by the lack of liquidity for onchain coins. Buying bottoms and trading momentum on more established, mid to larger cap coins ($50M+ market cap) becomes a valid strategy.

You want to look for opportunities like:

• ETH in 2020

• SOL in 2023

• PEPE in 2023

• SUI in 2024

• HYPE in 2024

Even one of these opportunties properly sized gave life changing returns. The next one will not necessarily look the same.

Broader market macro and cycle timing starts to become important and you can no longer rely entirely on the trenches to get ahead. Coins that are available on CEXs become more interesting, and you should get good at identifying when strong coins are bottoming out.

Note: Your portfolio is still not enough to retire or become a full-time trader with no cash flows, especially if it is your first cycle in crypto. The thought of quitting may cross your mind. If you made it this far without having to leave your job, you can continue working without issue. A good rule of thumb is to never quit your job in a bull market. It’s very likely when the bear market comes and crypto is slower, you’ll be happy you stayed.

Portfolio Size: 7-figure Hell ($1-$9M)

Ah, yes. The promised land. You are a two comma baller now. Catching a 10% bounce on your portfolio is now at minimum an upper middle class annual household income. Allocating to new launches generally does not feel worth it. Your tax bill becomes nauseating because it’s more than what you earn in your job. You are forced to care about cycle tops, and will likely obsess about this topic on Crypto Twitter. At mid-7 figures you could retire permanently in almost any part of the world.

The hardest part of this range is opportunity selection. Making $20K no longer moves the needle. Losing $100K+ is still painful. You know you have to take on risk to get to the next stage, but there aren’t that many liquid opportunities to multiply your capital with size. You have to continue to keep an eye for opportunities, while being far more selective in what trades you take. Farming good quality protocols can be worth it as you can capture a much bigger piece of the pie, especially if you are crafty. Earning yield on stablecoins on Aave is now a yearly salary.

If crypto cycles continue to exist, buying Bitcoin near the bottom of the next cycle will be a “make it” trade for you if you keep your profits. We highly recommend that you do a reset of your portfolio at some point in the $1-$5M range. Step one is making sure you calculate your tax bill early and put that money into a bank account that you do not invest anywhere. Don’t take risk on this. Step two is take $1 million and just bank it. Buy treasuries, some stock, real estate, anything. Give yourself some breathing room for a few weeks/months or even until the end of the cycle. There are many stories of people in crypto of people giving 7, 8, or even 9 figures back to the market because they kept increasing their risk all the way up and never took profits.

You have to be able to increase your time horizon on trades and investments in this range, aiming to accumulate larger cap tokens and riding them for 2-4x+. If you continue to focus on short-term trading you’ll want to focus almost exclusively on large caps that trade on CEX.

The Trenches can still be worth it if you can accumulate 1-2% of the token supply of a coin that becomes a mid cap or large cap and hold all the way through. There is a psychological adjustment period, however. Your losses in the trenches will almost always be 5 figures now. Unpegging the size of your risk units from what it buys you in “the real world” is a good way to get over this psychological barrier. Focus on the trade/investment as opposed to the PnL.

You can also start looking at some angel investing if you have edge (don’t just use it as a way to gamble — you likely will never see your money back).

If you do not take any chips off the table permanently, leveling up your portfolio from here will not feel any more comfortable than having $10K. Don’t be too attached to “6 figures” or “7 figures.”

Make good life decisions, and you will make better portfolio decisions.

Misc. Notes

• We do not discuss leverage trading (perps) in this post as we are not leverage traders

• Most people won’t make it. That’s true in crypto as much as it is anywhere. You are fighting for top 0.1% outcomes after all. It’s up to you to decide if this endeavor is worth it given your personal career trajectory, business opportunities, goals, and market acumen

• This not an exhaustive approach to “making it” in crypto. Over time you should be developing your own edge, conviction and ideas. That’s the only way you will continue to improve and level up

• Don’t underestimate the psychological and mental aspects, and stay healthy.

Life Beyond

If you are among the rare few who make it in crypto markets, congrats. Don’t let anyone tell you it was easy, or that you got lucky. Unless you did get lucky, in which case sell it all and never look back.

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Until next time..

Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.

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