When it comes to markets, an edge is an advantage.
It is something that gives you information that other participants don’t have. Examples of edges include:
- Information (I know something the market doesn’t know yet)
- Technical/Quant (I see something in the data the market doesn’t know yet)
- Analytics (I understand something the market does not understand yet)
- Experience (I can intuit these moves better than my competitors)
Having an edge is what creates alpha. If you do not have a defined edge, you should be dollar cost averaging BTC, ETH and maybe a few Layer1s and spending your time making money somewhere else.
When I first started trading, I thought about edge the way high frequency traders do. It’s the 1% margin that pushes the math from 50/50 odds to 51/49 odds which is then scaled to infinity. I thought about it the way Renaissance Capital does, finding these tiny inefficiencies and hammering them to 60% CAGR.
This is not the case. Edge can be as obvious as having a buddy who works at Binance who tells you a few things after 5 beers. It can be going to a conference and meeting developers who tell you where they will be building next. It can be spending 100 hours reading blog posts around five coins that give you conviction.
Some people have small edge that can be repeated often, others have big edge that can be repeated only a few times. Both can make you nine figures.
By now you have heard that 2022 will be “much harder” than previous years. Because the new entrants are sophisticated a lot of the easy money will be scooped up while you are sleeping on your paid group leader’s next call.
What this means is that edge requires more work to get the same upside on your P&L.
Many people will glaze over this fact. It is uncomfortable to hear. When they find out that the sanctuary of profits is changing around them, there is resistance.
Usually what happens, from a psychological perspective, is an uptick in “us vs them” rhetoric. Tribalism begins to take over. Instead of adapting and getting better, most people start focusing on the evil quants or the idiotic retail or the greedy VCs that are ruining the party. Sound familiar (see 2016 election results)?
This doesn’t change the truth about crypto getting harder. Either you embrace this fact or submit to buying + holding + yielding. You will eventually lose your money to the people who have an edge.
Hearing this will split the readers into three camps:
- Fuck this article. Tell me what coins you’re buying. Closes browser, back to Twitter.
- Ok cool man but what about me? I’m just a lonely anon who doesn’t have the money, network and skills your have, so how am I supposed to compete? I’ll never get ahead.
- You’re right. I should get an edge and/or make my edge better.
It matters less which camp you are in and more about your awareness of which camp you are in. As long as you are OK with your place in this market hierarchy, you will be happy and have success as you define it.
But for people in camp #3, the juice will be worth the squeeze.
Every time I make a trade or an investment, I ask myself “what do I know that the majority of other people do not know yet?”
This can also be through the lens of access — what trades, liquidity and deals can I enter that most other people can’t or won’t?
When I see a bottom forming on a sell off like we are seeing this weekend, I ask myself “what do I know that the other 500,000 people looking at this chart don’t know? before making any trades.
From this foundation I begin my process.
Imagine a group of hedge fund managers sitting behind a large desk overlooking Central Park in NYC. They have $10B AUM and looking for their next crypto moves. Liquidity aside, they have brought you in to explain where they should deploy capital next.
You come in and say “Well there is a head and shoulders pattern forming on the BTC Daily chart so I think it’s going to sell off more.”
Imagine saying that to a group of hedge fund managers.
Imagine the look on their faces, a combination of disbelief, laughter and pity spreading across the board room, as they ask if you need your parking validated. There is no edge here, son, in fact it’s almost a contra indicator.
Yet this is the level of edge many people in crypto apply to their own portfolios.
Let’s try it again.
This time you come in and pitch them on a new Layer 1 protocol that’s smaller, has great devs, hot narrative, influencers backing it and great tokenomics. Once the market rotates into this, you say, we’re looking at a nice 3–5x return.
Now the hedge fund managers look at you and say “Ok good start. Now prove it.”
What do you say next? Because this is where most bleeding edge analysis in crypto stops. Look on Twitter, blogs, chat rooms, even private groups that charge you $$ — they will give you a set of fundamentals that should move the way they want, but who really knows.
This is the kind of edge that worked really well in 2017 and 2020–2021. It kind of works now. It will not work in 3–6 months.
So let’s try this one more time.
You walk in to the board room and say “I have access to 10% of the supply of a new coin that has a Series A already lined up assuming we hit XYZ metrics. I’ve brokered a deal with 10 influencers and three of the best devs in the space to all build out an incredible product that has already had a very successful beta test. We’ve also already had meetings with three banks who have signed letters of interest to buy in when the market cap is 10x higher. Plus the entire investment will be available for OTC sales if you need to get out before the vesting period.”
The chances of success are upwards of 90%. You’d have a check signed immediately.
The point here is not to say you need to do VC type deals or broker marketing campaigns, it’s to show how strong an edge needs to be in the coming year.
Another example would be to point to funding rates, open interest on the options market, liquidation volumes and other quant signals that can all be put into a high probability outcome. That can give you equal levels of confidence as the deal above.
Trades and investments you make need to be strong enough for a billionaire to agree with you, not good enough for blog readers to bandwagon on board with.
If you’re still thinking to yourself “but Carter how I do ever get this edge? I’m just a lowly pleb?” I would say to you why should you get rewarded when I’m willing to put in the work? Why do you deserve the alpha? If hundreds of people in crypto are willing to go make this happen, shouldn’t they get the rewards?
Tough love but that’s the game now. Welcome to the Shark Tank.
Before you press the Buy or Sell button on your trades this week, stop thinking about how it COULD work and start proving to yourself why it WILL work.
This is the mentality of top performing edge. If you don’t have it, there’s nothing wrong with that, but you should seriously think twice about stepping into the ring.
Measure twice, cut once.