Hey everyone,

After what felt like ages, we finally got a green week.

The crypto markets pumped heavily on Tuesday and Wednesday and we’re now over the $1000 mark and sitting on some nice gains.

So what fueled this sudden, unexpected pump?

It was mostly due to a short squeeze. Bears shorted the crypto market too aggressively and when things didn’t go as expected (the line went up instead of down), they rushed to cover their positions, pushing the prices even higher.

Other combinations were at play as well; Reddit NFTs went parabolic, Elon bought Twitter, and, don’t forget, October has historically been a good month for crypto.

As the markets are filled with greed and optimism again, it’s good to remain realistic. It was no more than a week ago when we were talking about how f-cked up the global economy is and how unlikely it is to get into a bull market soon.

Nothing has changed since then except for market sentiment. The crypto market is notoriously known to have the memory of a gold fish and the attention span of a 2 year old child. Don’t get carried away.

In terms of macro, which is what mainly drives the market currently we didn’t have any particularly positive news. Core PCE was released today (which is the FED’s favorite inflation metric) and it came out just as expected; inflation still looks strong but not stronger than we thought.

However, there are still some bullish scenarios to consider.

First of all, there’s always the possibility of decoupling, which means that crypto will stop following traditional markets and be less reactive to the FED’s decision. Highly unlikely in my opinion.

Secondly, there’s the scenario that where the FED pivots in the short term in order to spread positivity in the economy before the upcoming elections in the US. This could trigger a short-term bull rally, but would make matters worst long-term.

Even though it seems irrational, don’t be surprised if something like that happens. As long as money and state are linked, politics will control the economy.

Thirdly, some people claim that the collapse of the global economy has already been priced in, we reached the bottom and we’re just going to stay here or move upwards very slowly. I’m not a big fan of this theory; risk markets (especially crypto) tend to react rapidly so I find it hard to believe that negative news won’t trigger further drops.

So what do I think?

I believe that this was just a relief rally. Crypto is volatile and it was certain that we would see a sudden bounce in the short term at some point.

But as I said before, nothing has changed since last week. I predicted the bear market extending to at least the first months of 2023 because there were significant problems with the economy. This problems have not suddenly gone away because DOGE pumped 20%.

So, in the short term, I don’t see the market pumping much further.

In fact, I believe that a return to the previous levels is more probable than another rally. Unless the FED announces a surprising pivot on Wednesday (which would realize scenario #2), I see us cooling off at least until the next CPI report.

From -6.5% last week to +9.3% now, that’s the beauty of catching a rally while going full degenerate. While +93$ is not that impressive, given the current conditions, I have to say that I’m pretty happy with myself.

I’ve spent countless hours doing research the last few months and I feel like this has given me an edge. This edge is small right now, but will be massive in the next bull market. The Optimism play is a great example of that.

About 3 weeks ago I sold my Cardano at a loss and bought $100 of Optimism. I believed (and still do) that Ethereum L2s will massively outperform alternative L1s in the future. Not even a month later Cardano is at $0.40 (while I sold at $0.43) and Optimism is at $1.12 (while bought at $0.86).

Polygon and Ethereum, my highest conviction picks since the beginning of this challenge are also leading the market. No matter how much they fall in the short term, they’re guaranteed to eventually win.

So I keep my MATIC staked, earning that sweet 13.9% APY on Binance and keep holding my Ether tight.

Premia is also pumping along with the rest of the market but, as expected, in a more volatile way. It’s now in the green overall.

BNB and ATOM, the other 2 high conviction picks, have enjoyed pumps of their own although not as dramatic as the Ethereum coins. ATOM stays staked on Binance for ~30% APY.

XMON and X2Y2 remain mostly at the same levels which is a good thing (remember I want the first one for the SUDO airdrop and the second for generating yield).

And ThorChain remains the bigger loss percentage wise. Still a very necessary and undervalued protocol though.

Considering that I don’t expect the market to continue pumping this week, it is wise to cover my positions with Options or Futures.

Originally I was thinking of another Ethereum put but eventually decided against it.

Ethereum remains the most solid pick in the whole crypto space and the updated tokenomics might start to affect the price positively from now on.

Ethereum has been deflating since the Merge and we haven’t really seen the results from the reduced selling pressure. I wouldn’t be surprised if ETH becomes the token that holds better than everything else during a meltdown.

So if I’m not shorting ETH what am I going to short?

I was trying to decide between Cosmos, Optimism and Polygon.

So here’s how I thought about it:

• The ATOM 2.0 whitepaper seems to have some weaknesses that are currently discussed inside the Cosmos community. Turns out the proposal wasn’t as genius as I made it out to be. However ATOM turns to behave a little weird price-wise.
• Polygon and Optimism usually fall significantly when the market dumps.
• The rest of the the tokens are a smaller part of my portfolio (and some of them are not even available for futures trading).

So after thinking about it for a while, I decided to go with Optimism who has done a +58% this week. In my opinion this makes it more likely to cool off and fall back to more rational levels.

However, OP has a lower cap than MATIC, which makes it more unpredictable.

My plan to short Optimism at $1.15 with a 12x Margin on Binance, putting $30 as a collateral.

This meant that I would be able to short $360 of OP, but if the price ever raised above $1.24 (+8.33%), I would get liquidated and lose my $30 collateral.

Another mistake

But then I realized I was an idiot and instead of $30 as collateral I put $30 on the OP amount. So I essentially bet about $2.5. When I checked my position about half an hour after making this move, OP was at $1.12 and I was already up about 25% which means I made a staggering $0.63. Good job, could have made $70 in less than an hour but I somehow managed to f-ck it up again.

So I decided to short Polygon instead. Same terms as the original Optimism plan (better risk/reward now), $30 collateral with 12x margin. Entry price at $0.939, liquidation price at $1.

In total I spent $30 betting that the hype rally will cool off.

Nevertheless, I think that this play puts me in a win-win situation.

If the crypto market continues to rally next week, I may get liquidated and lose $30, but the 2 consecutive green weeks will be a gamechanger for market sentiment and ultimately cause way bigger profits.

Anyway, I’m getting too technical with the financials and it can be tiring. Let’s move into what I learned through my research this week and possible opportunities.

The L2 thesis

After diving deep into the Layer 2 sector by understanding the technology of rollups and interacting with popular L2 ecosystems, I am now more bullish than ever. I will make a full post about them in the next few days but as a summary:

• L2s will outperform alternative L1s in term
• L2s will be more valuable and useful than alternative L1s
• Optimism is a great project whose token doesn’t have much utility at the moment
• L2s have legitimate business models that can generate revenue
• Arbitrum is a little superior to Optimism from an investing standpoint in my opinion (that’s why it is important to get the airdrop)
• ZK-rollup projects will be among the most valuable tokens in crypto in the next 2–3 years

Real-yield protocols

Since I expect the bear market to last for the next several months (at least), it makes sense to get into projects that generate yield through sharing their revenue. X2Y2 is a good play but there are also other opportunities.

DeFi perpetual protocols like GMX and GNS are some good examples, even though their tokens have already pumped significantly in the last few months.

Decentralized Social Media

This is a crypto sector that I’m particularly interested in and I will probably do a deep dive in the upcoming weeks. For now, the only project that seems to be promising from a token investing standpoint, seems to be DeSo.

The protocol I’m mostly interested in however, even though it doesn’t have a token, is Lens.

Exploring ecosystems

This week, I spent a significant amount of time experimenting with different crypto ecosystems. I played around in Optimism, Arbitrum, Cosmos, and Cardano. I will dedicate full posts on these but my main takeaways were these:

• The Optimism ecosystem is mostly dominated by the projects that dominate the Ethereum ecosystem
• Arbitrum has a lot of ETH projects as well but there are also some original ones (GMX)
• Cosmos is a very deep ecosystem that needs a lot of research
• Cardano has the best technology out of all the blockchains but its ecosystem is lacking innovation and its dapps look/feel weird

Shorting token unlocks

I mainly have my eyes on the IMX token unlock which is next week and the dYdX token unlock which is in a few months but will cause a massive supply shock.

Both of these might be good shorting plays that can make me a quick buck.