Article Summary: Trading the metagame By Cobie

Original Article

Article Author: Cobie

Crypto investing = Video game ≠ Normal Investing

Participating in crypto markets during the thrill stages of a bull-run is isomorphically more similar to playing a modern video game than it is to investing.

Modern games have metagames

Most competitive modern video games have an ever-evolving metagame. The metagame can be described as subset of the game’s basic strategy and rules which is required to play the game at a high level.

That metagame changes

Crypto markets are a video game and market participants want to play: they don’t like to be idle during a bull-run. They want to make moves and capture opportunity.

Knowing the meta game of the day is key to winning

All other variables equal, knowing and utilizing the metagame gives the player the maximum chance to win the game.
The biggest winners of this trend were those aware of both the metagame as well as the incentive structure behind the metagame.
You’ll notice that it was possible to win the crypto video game by ignoring this changing metagame altogether. You didn’t need to be early to Dani coins to have made good investments in 2021. But, to play at the highest level and maximise wins, you had to identify and exploit the hot-ball-of-money rotations between assets at least a few times.
I think for some market participants, simply following the changing metagame is good enough. Especially for those that are able to control their euphoria or are natural skeptics. I’ve seen plenty of people able to spot a trend, jump in, jump out with decent profits and move on without turning their trade into a church.
Maybe more importantly, the biggest losers were formed when players misidentified the current metagame as something else. Anyone that believed the early-2021 metagame was actually a long-term investment thesis ended up holding ROOK from February 2021 through to a -80%. Or, they over-invested into 4th-tier NFT PFP trends that became illiquid and irrelevant.
As with video games, using the metagame in crypto gives the player the maximum chance to win. Identifying the metagame allows you to figure out the easiest and most lucrative opportunities at any given time.
Identifying the meta and the dynamics behind the meta are probably the most important skills of any shitcoin trader. If you understand the dynamics and incentives, you can figure out whether a metagame has some positive-feedback loop or sustained vector of growth. Or you can figure out if it’s a wildfire rapidly burning out of natural resources leading only to its own demise.

How To Win The Metagame

1. Understand the fundamental dynamics and sub-metagames so you can notice shifts sooner

But, if you understand why Nocturne is strong in the meta, and the changes that happened in the game to cause that boost in strength, you’ll be able to identify the scenarios to exploit those strengths, the pitfalls to avoid, and generally how to maximise your chances to win with this unfair advantage. You’ll also be the first to know when this advantage is no longer applicable (by changes in the game), because you know why the meta exists.
Well, being “early” is not about buying the coin on the first possible day. Being “early” is about buying the coin at a valuation that is lower than its potential. The Solana ecosystem had it’s own “very high FDV” sub-metagame, whereby the only people that were really early were the people that funded the seed round. Much of the Solana ecosystem’s tokenomics benefited founders and financiers, but meant that the projects were valued as though they had already succeeded and many projects needed to grow into these valuations.

2. Understand Triggers Of New Metagames And New Phases

A. Success & Failures

Success: People are inspired by the success of a project and they want to look for things that are similar. Founders decide they can build something like that, but better! Investors want to be early for the next version of this great idea. Axie Infinity’s success created a tidal-wave of capital flows into gamefi. Not only did AXS become one of the best performers of the year, but other thematically related assets also started to perform well, even if they did not have the same metrics or usage to back up their valuations. It spawned an entire metagame. Gamefi became trendy.
Failure: Ethereum has failed at scaling in a way that allows the chain to be used by regular people. It’s prohibitively expensive to use on L1 and the L2s are very new and have their own UX issues. The “Alt L1” metagame is rooted in Ethereum’s success and enabled because of its failures.

Case Study: Ethereum

Success: Ethereum grows

Failure: Ethereum has trouble scaling

B. New Generation Wants New Bags

Every generation opts out of the previous generation’s ponzi and decides to create its own
Sometimes the meta is simply enabled because of the community’s like-minded desire to be early. New market participants simply refuse to buy the bags of rich OGs and instead opt to create their own value.
Case Study: Some trends in DOGE, SHIB, BSC, BAYC, AVAX, GME, etc can all be seen as having elements of this. They see that something was successful and they have simply decided “we aren’t playing their game, it’s our turn to be rich”.

C. Injection Of New Attention

Frontrunning Coin Listings On Exchanges Or Featured Listings On OpenSea

There was a period of time where FTX market listings were virtually always bullish, since it was an injection of attention in the middle of a bull market onto a new asset.
For a while, there have been people front-running Binance and Coinbase coin listings. They figure out, either through insider info, an API leak, or whatever method which coins are going to be added to a major exchange, they buy that asset in advance and they sell that asset upon listing.

D. Copying Influencer Trade

Follow-trading certain VCs has had it’s moments of being meta. As long as you don’t follow Barry.
On-chain analysis and whale wallet watching has had moments of meta.

E. Presales

There is also a meta in presales whereby bad projects can get funding by all-but guaranteeing profit to their early backers. They raise money at a tiny valuation, offer extremely short vesting, choose investors with big audiences and host an IDO at 20x the valuation that early backers were granted. They get funded, seed buyers are virtually guaranteed a profit, and early backers with large audiences get to say “here’s a thing I am an invested in” as a disclosure (which IMO completely misrepresents the imbalance in risk between their investment and their audiences’ potential investment but I guess is legal). In this meta, founders win and early backers probably win. The meta is weighted against everybody else.

3. Sell metagame at peak exuberance and convert into value holdings

Traders use the meta to exit/rebalance longer-term positions. If you had a big position in some token, which suddenly became meta, even if you have a long-term thesis around the asset, it might be a good idea sometimes to rotate out of it at exuberance and rotate back in when the meta has moved on to whatever is trendy next to compound your position size.
In general, the most successful altcoiners I’ve met have used the metagame to increase their value-holdings over time (ie. trade meta to stack BTC or ETH).
The worst thing you can do is run head-first into a metagame that is reaching exuberance. So, if you already thought 5 or 6 times about taking a trade, weeks/months have passed, and you have finally plucked up the courage to do it: you’re probably too late. It doesn’t feel risky anymore, which means it’s probably maximally risky.
Usually when the meta is common knowledge amongst all participants, the meta is already shifting to something else.

4. If you’re not in the current meta, consider selling

Sometimes you can simply see that you missed the current meta and use that info to exit positions that are out of meta to preserve value, or just take a break and restore mental energy. As the meta and attention shifts to new things, capital bleeds out of previous metas. People sell the last meta they fomo’d for the next one. It’s a video game. Players want to play, they don’t want to be idle.
Many traders are stuck using different metagames that are not currently reality. Lots of people have spent the year charting Bitcoin Dominance charts and modeling potential dominance runs because they are referencing a metagame model based on 2017. Other traders have spent the year relying on the Stock2Flow model to inform their trades.

5. Go long with leverage when the timing is right

The meta can be used to help decide which assets to leverage trade on derivatives, or to construct pair-trades around. Longing the meta or best-performing assets when you think the general markets look good rather than longing majors has rewarded traders hugely in 2021, where longing SOL and LUNA from the June depths hugely rewarded you vs longing BTC and ETH.

Examples Of Meta-Games

DeFi Summer
Aave, Compound
Bitcoin Runup
2020 Q4
New NFT Mints
2021 Q2
“The popularity and success of Crypto Punks inspired projects like Hashmasks and Bored Apes; in turn their success inspired a mimetic trend of market participants confidently searching for “the next big profile-pic NFT series”. These mints were over-subscribed, causing hyped secondary markets. People that missed out on the mint were fomo-buying ‘rares’ after the mint. The profits for early minters further inspired more confidence in participating in these mints. Players begun to see minting these projects as “risk-free”.”
Opensea, Cryptopunks, BAYC, Art Blocks PVPs, gaming
Ethereum Killers (Alt L1s)
2021 Q3
The “SolLunAvax” metagame sustained & strengthened virtually all year, and their popularity caused this metagame trend to flow down into obscure or fringe alternative L1s too. You could say things like “which L1s have not pumped yet relative to market average?” to participate in this metagame, without even really knowing what that L1 does or if it is actually a good protocol... Since Ethereum’s fees are exclusionary and broken, this metagame has been durable... Ethereum is too expensive to be active for lots of people. Until that changes, this metagame is likely to remain strong.”
Avax, Luna, Sol, BSC
DeFi 2.0
2021 Q4

Phases Of Cycles

Successful launch
Sober Reality
“Long-term investment thesis transitioning to popularity.”
Mimetic exuberance.
Initial project success for a new metagame
Successful copy cats
Demand plummets prices shrink
L1s: Ethereum NFT: Cryptopunks Defi 2.0: OlympusDAO
NT: Hashmarks, Bored Apes Defi 2.0: A million forks
Success creates FOMO Inspires new founders and investors to build something like the success but better
More success creates even more FOMO. Investing feels risk-free, but it’s actually the most risky. New participants don’t want to just buy the bags of rich OGs and would rather start from scratch
Many of the projects are uninspired. Cash-grab scams Most people are losing money
What To Do
Sell metagame and buy value ”I’ve met have used the metagame to increase their value-holdings over time (ie. trade meta to stack BTC or ETH).
Look for next metagame

Examples Of Metagame Traders

A trader called TheDogKennel or something created a portfolio of every single dog coin after the early Doge pumps. He identified there could possibly be a dog-coin meta, and turned $15,000 into multiple million dollars. Possibly the smartest dumb idea I’ve seen all year.
Traders that saw “defi-summer” style dynamics on Avax were able to buy-and-hold the best native Avax dex from sub-1 penny to over $4 because the understood the meta and the dynamics behind the meta.