Research Summary
The report discusses the concept of “metagame” in the context of cryptocurrency trading. It compares the dynamics of crypto markets to modern video games, where understanding the metagame – the strategies and rules required to play at a high level – can give players an edge. The report highlights the importance of understanding the metagame in crypto trading, using examples from Ethereum and other alternative smart-contract platforms. It also discusses the evolution of the metagame in crypto markets and how understanding the dynamics behind it can lead to successful trading.
Key Takeaways
Understanding the Metagame
- Metagame in Crypto Trading: The report compares crypto trading to playing a modern video game, where understanding the metagame can give players an advantage. In crypto trading, understanding the metagame is not necessary to score some wins, but it is crucial for consistent success.
- Examples of Metagame: The report provides examples of metagame in crypto trading, such as the “Ethereum killers” metagame in 2021, where alternative smart-contract platforms became one of the best trades of the year.
- Importance of Understanding the Metagame: Understanding the metagame and the dynamics behind it can help traders identify and exploit opportunities in the market. It can also help them avoid potential losses by identifying when a metagame is reaching exuberance.
Evolution of the Metagame
- Changing Metagame: The metagame in crypto markets has evolved significantly over the years. Examples include the DeFi summer in 2020, the Bitcoin dominance run, the NFT boom, and the alt L1 season.
- Impact of Metagame on Trading: Traders who were able to identify and exploit the changing metagame were able to maximize their wins. Those who misidentified the current metagame as something else often ended up with significant losses.
- Transition of Metagame: Metagames often start with a long-term investment thesis transitioning to popularity, and end in mimetic exuberance.
Understanding the Dynamics Behind the Metagame
- Importance of Understanding Dynamics: Understanding the dynamics of why or how a metagame works is more important in crypto trading than in video games. This understanding can help traders identify the scenarios to exploit, the pitfalls to avoid, and when an advantage is no longer applicable.
- Example of Dynamics: The report provides an example of how understanding the dynamics behind the metagame could have helped traders avoid losses in Solana DeFi and make profits in Avalanche DeFi.
- Identifying Potential Metagames: Watching the winners and locating the problems in crypto can help traders identify potential metagames in advance.
Actionable Insights
- Utilizing the Metagame: Identifying the metagame and the dynamics behind it can help traders figure out the most lucrative opportunities at any given time. It can also help them exit positions that are out of meta to preserve value or take a break and restore mental energy.
- Avoiding Metagame Exuberance: The worst thing a trader can do is run head-first into a metagame that is reaching exuberance. When the meta is common knowledge amongst all participants, it is likely already shifting to something else.
- Independent Thinking: Identifying mental models or metas used by other traders can help traders think more independently about what is happening and identify biases in thinking.
