Different spaces but same logics

One can navigate the Defi space and invest with logics that are not too different from investing in the Tradfi space.

Defi stands for Decentralized finance. Tradfi stands for Traditional finance.

If you are new to cryptocurrency, I would encourage you to read a little more in-depth on Blockchain platforms here before you get started.

Here are my five investment logics:

1) Only invest in cryptocurrencies you understand

Logic: Only invest when you are satisfied with the fundamentals and can explain what you invest in in simple terms (if you can't explain it to a 5 year old, you don't know it well enough). Otherwise, it is plain speculation. Same goes for putting your money into a cryptocurrency.

There comes conviction when you want to invest in the native token of a project (side note: as retail investor, you are not investing in the project itself say like a VC, you are buying the token which may correlate to how well the project does), just like how you would invest in a stock which has its price correlated with the company's underlying business earnings. 

It may sometimes be less straightforward in crypto, since one can argue that there is no true fundamentals (which is untrue to certain degree). First, we got to be clear what's the function of the token as different token type has different utility values. We can read the white papers of the projects to find out more.

Also, note that audited projects are not guaranteed risk-free. It just means that most obvious or common risk factors have been mitigated and that gives the community a better sense of security. However, smart contracts have many variables and even a small loophole can be quickly exploited by hackers and have money channeled away (given the fast on-chain speed). So DYODD and read the protocols to decipher what risk level you are willing to undertake. I would advise to go for those that are well established for years, have had minimal hiccups, have a good dev team and high TVL.

I have shared a thought thread on Twitter on why I do not fancy Luna and the Anchor protocol and why I call it an encapsulated "economy" which I would not want to join. Yeah, you can call me a luna(tic) if it moons one day like btc.

2) Diversify

We all know as part of risk management - don't put all our eggs in one basket. 

If you decide to diversify your portfolio by using 5% of it to buy ONE cryptocurrency / token, that is NOT diversification.

You can diversify by buying a basket of cryptos (you know, macam ETF?). For beginner, I would suggest heavier weightage on the "blue chips", smaller weightage on the up-and-coming like altcoins and NFTs etc. You can further diversify by putting them on different Cefi or Defi platforms, or your own crypto wallet.

3) It runs in cycles

Source: SecretsOfCrypto

It's just like what you see in the stock market of boom-bust cycles. The main difference being that the boom-bust cycle here is being driven by "fad" and not the Fed. It could also occur more frequently than our normal economy.

The observed pattern is that crypto prices tend to get pumped up more furiously and dumped more furiously. This can be attributed to the small number of big whales holding, thus their dumps made the price avalanche more powerful. 

I hope as we see bigger pools and more diversified holdings in future, volatility will be much reduced.

If we study the crypto ecosystem closely, it is obvious that many projects reflect real life economies and applications like "Defi banks", insurance, stock markets. Key factors to consider which projects to buy into would be their sustainability, security, usability and practicality of its primary function.

4) DCA works better than market timing

If the assets are trending upward, then doing DCA (dollar cost average) over time will let you fare better rather than staying on the sideline and waiting for a mega crash to happen.

Just remember to save enough ammo too, you will never know when a crash might greet. *Refer back to the cycle image above*

5) Watch out for fees

Nothing comes free in this world. Neither does it in the other.

You want to trade? Pay commission. 

You want yield? Pay up the gas fee. 

The more you itchy-fingers and move your crypto around, the more gas fees you have to pay.

Hopefully with these logics, you will be able to invest in Defi with a better peace of mind.

That's all for now as I try to keep things short, sweet and simple.

"See a new project as a new company. Utility as its business. Token price as its share price. Community as its investors."

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Disclaimer: Contents of this blog are personal opinions and NOT financial advice to buy or sell any mentioned securities, commodities or assets.