Are You With the Herd?
If you attended this week’s Crypto Week in Review session (if not, no worries, here’s a recording), you noticed that much of the discussion focused on understanding the herd’s behavior.
Why do people buy tokens with no or weak fundamentals? Is there merit in actively following Elon Musk’s or any other influential figure’s social media? Should you consider public sentiment around a project when making investment decisions?
People like stories. One of the most direct manifestations of that is Instagram’s “Stories” feature. Besides that, you have novels, movies, songs, and many more.
Stories play a significant role in investments as well. If you look at companies like Theranos and Nikola, you see how an enticing story can be sold for billions of dollars without being backed by anything substantial.
However, the companies I just mentioned are just outliers in the overall trend of startup valuations being driven by sentiment.
When Charles Hoskinson was selling the idea of smart-contracts on Cardano, the project’s community roared. People were overly optimistic because they’ve been spoon-fed a story about Cardano being better than Ethereum. Once the smart-contracts on the platform went live, many of them got spooked.
As you see, even a poorly designed product can make strides if its owner drills some story into people’s heads. But what if that story is as simple as: “we want to get rich by investing in a dog coin?” In other words, what if the story is just a meme?
SHIB price. Source: CoinGecko.
Memes are easy to digest, so it takes less time to bring people on board. They don’t make exaggerated promises, which keeps engagement high because everyone clearly understands the idea and can quickly cooperate to move the market.
SHIB, DOGE, AMC, GME—these assets have strong memes, which helped them form cult-like communities that can make prices fly.
In my opinion, the main question to ask yourself when dealing with sentiment-driven plays is: “am I the part of the herd?” And, if the answer is positive, I’d walk away from such an investment.
The herd is essentially exit liquidity. The meme is the strongest when the price goes up, and the smart money is exiting during such periods.
Then, after the price drops, they buy back in with an increased stack because the meme doesn’t go anywhere. They bet that they will be able to take advantage of the meme once again in the future to profit again. With a strong enough meme, it’s a perpetual mechanism.
With more money, each cycle spreading the meme around will be easier. And, since memes are easy to digest, the right marketing will easily attract exit liquidity.
An advertisement on a bus in England. Pretty straightforward and easy to digest.
If you want to make money with these plays, you need to be with smart money. A popular bell-curve meme illustrates the situation, but it doesn’t illustrate one important detail.
According to this meme, the dumbest and the smartest people make money, while the middle of the bell curve is left frustrated.
The left side of the bell curve rarely wins. Some members of the herd win big, but others end up being suckers that bought the top. Meanwhile, smart money anticipates the moves of the dumb money and front-run them.
So, a meme bet is likely to play out the best when you make it when nobody is interested. When a community is in a hibernation state, and the smart money is accumulating, you should be making a bet that the meme still holds power and the dumb money will come.
Sentiment plays don’t fit our methodology, but sentiment inevitably influences prices, and we consider it, especially on the bull markets. For us, it’s about finding a balance between the project’s fundamentals and “pumpamentals.”
SIMETRI Portfolio–Warming Up the Engines
I still anticipate BTC to make substantial moves in the coming weeks, but the current sideways movement helped altcoins, including those in SIMETRI Portfolio, to have a bump.
Right now, the Portfolio’s ROI is around ~3,800%, which is encouraging given that it has been fluctuating around 2,300-2,600% over the past several months. However, in my opinion, things are just getting started.
