Letter 54: On Making Money in Crypto

6 practical tips, ideas, and musings to help you make money (and keep it)

For the first few years of my crypto career I was naive. I thought we were here to change the world, I believed in the mission and vision of people and protocols, and I didn’t think money led to happiness.

After a few years of a bull and bear cycles, of watching the griftiest of grifters grift the biggest grifts you’ve ever seen, and then watching them do it all over again to a new class of innocents, you might say I became a little jaded.

Not very jaded — I still believe crypto will change the world. I still believe in the power of decentralized permissionless censorship-resistant networks. And for the most part I still don’t think money in and of itself leads to happiness.

But I do now realize the (very obvious in hindsight) fact that just about every single person in the crypto space wants to make money. They want to make money above almost anything else. They might also want to build cool shit and help others and rage against the machine and yadda yadda yadda — but the cold hard truth is that most people in the world are driven by money, and crypto is no different. In fact, crypto probably attracts more than it’s fair share of those with dollar signs for eyeballs.

And while having a bunch of money isn’t a simple cure for depression, and obviously doesn’t immediately lead a person to a life of pure unadulterated bliss, i’d be lying if I didn’t admit that on the balance, more money does equal more happy. Not a lot more, and mo money can indeed cause mo problems, but generally speaking, money is awesome — it lets you do lots of cool shit, with the people you love — and that, to me, leads to more joy and happiness in life.

This five paragraph introduction is basically my way of saying: of an infinite number of potential topics to choose from for my first premium newsletter issue, there’s a reason I landed on “making money in crypto”. Because it’s the one freaking thing damn near everyone wants to read about. If you’re that rare specimen of a human that isn’t interested in this topic, then I do apologize, and rest assured Dear Reader that in future weeks we will cover more of the less-money-centric-and-more-idealistic topics.

Oops, it’s now a six paragraph introduction (seven including this one). So before I digress further, let’s get into the meat of what I actually wanted to write about today: making money in crypto.

#1 The Most Important Part of Making Money is… Not Losing It

Before we talk about making money, we need to talk about not losing money. It’s actually relatively easy to make money either by skill or luck in this space — it’s much harder to hold on to that money.

Virtually everyone I know, including the most successful investors and traders, have all fallen victim to roundtripping. It almost always happens early on in people’s journeys, but it is a problem for just about everyone. You make some money, you think you’re god’s greatest gift to earth, so you double down. You think this is easy. You think about how great your life is going to be now that you’re making X amount of money a week/month/year. You get cocky and complacent and invariably you end up being humbled by the market, one way or another.

To a certain extent I truly believe this is one of those lessons everyone has to learn by experience. No matter how many times people can tell you to take profits, to set up systems, to not roundtrip, almost everyone is still going to do it. But perhaps you’re the exception, or perhaps you’ve already roundtripped once and now you really don’t want to do it again.

This is where I find that systems and plans help the most for the people who have been burned, and are desperate not to get burned again. These are the people most willing to stick to systems.

The benefit of systems are that they take the emotion out of it. No matter what, when your portfolio is flashing new ATHs every day, you’re not going to be able to think straight — but if you have a system set in place from months (or years) ago, you at least stand a chance of sticking to what past-you wanted future-you to do.

There’s no single best system to use (and the best will be one(s) that you yourself come up with), but here are some ideas to get the juices flowing:

1. Any time you make a 2x gain on a token, sell 50%. This caps your downside at breakeven.

2. Any time you realize profits from a trade, convert 20% to stables and send it to a cold wallet. This guarantees that when the music stops, you’ll at least have some money left (hopefully a lot!)

3. Any time you share a PnL screenshot with X, a discord server, or your group chat, sell 25% of your position.

These are all ways of helping you realize some profit and hopefully keep it. Yes you might miss out on some additional gains if the thing you sold goes on to do a 100x, but the road to rekt is paved with people chasing “the next 100x”.

Alright now we can talk about actually making some money.

#2 The Two Different Ways of Making Money in Crypto

I think you can basically lump every method of making money into two categories:

1. Using your existing money to try and make more money:

   1. short term trading

   2. long term buy-and-hold investing

   3. providing liquidity to earn fees

   4. staking money to earn rewards/yield

   5. lending money to earn rewards/yield

   6. and many more

2. Using your time to try and make more money:

   1. working a “real job”: marketer, project manager, engineer, intern, whatever

   2. farming airdrops

   3. playing play-to-earn games

   4. creating content / building a personal brand / becoming an “influencer”

   5. and many more

There is of course some overlap between the two — if you’re going to do anything in the first category, it still requires some amount of time, and some of the things in the second category you can do with money or without it. But on the balance, most things will fall firmly into one of the two categories.

I think a helpful exercise is to sit down and consciously think through your various money making options. This simple task is something that most people never do. It’s especially important to do it for yourself because everyone is in their own unique situation. Far too often people are milling around on X looking at what other people are doing and going “hmm maybe I should be doing that too”, not realizing that the person they’re thinking of following is in a completely different situation than them.

Very rarely will you come across someone else who has the exact same amount of capital and the exact same amount of time to devote to crypto as you (and the same skills, and interests, and so on). How much you have of each will (or at least should) dictate how you approach making money in crypto.

Two extreme examples are the 18 year old kid with no money and 18 idle hours a day vs the 47 year old adult trying to figure out how to invest half a million while managing a nine-to-five, a spouse, three children, two parents, four grandparents, one dog, and a partridge in a pear tree.

I always recommend people take the time to think through their options (look at my list, or create a list of your own). Then pick one or two areas to focus on, but almost never more than that.

#3 Pick One or Two areas to Focus on

One of the most significant and most common mistakes I see people make is trying to do too many things at the same time. I’m guilty of this myself, though I like to think I’ve gotten better over time.

It’s very easy for people who are capital rich and time poor to avoid this trap: they should just buy-and-hold a few long term positions and perhaps put a chunk of stablecoins into a safe defi protocol to earn 5-10% yield and call it a day.

They probably won’t fall victim to overtrading simply because they don’t have the time to overtrade. The ironic thing is that they’re probably begrudging their busy life and wishing they had more time so they could be “in the trenches”, all the while being blisfully ignorant of the fact that 99% of people with all the time in the world end up losing money in said trenches.

All they need to do is check in on their positions once a week or once a month and then enjoy diving through their scrooge mcduck room of gold a decade from now.

To be honest, the above strategy is probably best for the majority of people. If you’re not currently capital rich, go work a normal job and take whatever money you can and buy-and-hold a few long term positions and you’ll almost certainly outpeform the majority of people.

If you’re reading this though, you’re probably someone who wants to be more active in the space, and so everything below is for you. Still, I implore you to take a moment and consider spending far less time in crypto and taking a step back to simply manage some long term positions. I cannot stress enough how many people lose money in crypto, or don’t make as much as they could have if they simply sat on their hands a bit more.

Anyway, assuming you’re like most people and want to do more stuff, read on Dear Reader, read on.

The reality is that most people want to trade memecoins and they want to farm airdrops and they want to play a bit of that play-to-earn game and they want to tweet and try and build a following and they want to participate in defi and earn some yield and and and and and

Truly, this is how most people lose most of their money in crypto. In an effort to try and make as much money as possible by not missing out on anything, they try to do everything and die by a thousand cuts. They might make some money but they inevitable end up losing some or all of it back (and oftentimes more) due to overwhelm and mismanaged positions and fees and and and and and and it’s gone again.

There are probably some rare exceptions to this rule but you should just simply assume you’re not one of the exceptions. I’m definitely not one of them. The exceptions to the rule know who they are.

You help avoid this scenario for yourself by picking one or two areas to focus on, and becoming an expert in those areas. If you’re gonna try and make it by trading memecoins, put airdrop farming out of your mind. If you want to make it by airdrop farming, then memecoins are likely a distraction. If you’re trying to make it as a founder of your own project then you probably don’t want to be spending 5 hours a day tending to your defi yield farming operations. And so on.

I recommend writing down what you’re going to focus on. You can always change your mind and focus on some new things, but if you’re going to do that, you would probably do well to drop one of your existing focuses.

You also want to find a way to track your progress, to see if you’re actually getting better at doing whatever it is you’re trying to do, and not just getting lucky (or unlucky). There’s a very simple way to do that..