The 3 Main Crypto Games

As crypto has developed, the strategy space for someone attempting to make money has expanded exponentially. In 2012, about your only decision was whether or not to buy some bitcoin, and if so how much. In 2022, I believe your options fall into 3 main categories, the pros and cons of which we'll examine now, in (my perceived) order of prevalence:

1. Trading

It seems to me this is by far the most widely played and glorified game in crypto, and it's easy to see why. Successful traders can make mind-bogglingly large amounts of money in ridiculously short spaces of time. Jump on Twitter during a bull run and you'll regularly see guys posting trading account PnL's from their phone where they're up 7 figures on a day trade. Binance, FTX and co. encourage this behaviour by supplying shareable links to post on social media, complete with a referral code so your dumb friends can try to emulate your 'success' and likely REKT themselves on leverage.

While the appeal of instant riches will always be tempting, especially to those with shorter time horizons, trading is a ridiculously difficult game to win at long term. There are a few reasons for this. Firstly, trading is essentially a 0 sum game. In order for you to make a dollar, someone else has to lose one. This is actually a fairly mild phrasing - consider that for each trade you make, you will pay:

• A liquidity 'taker' fee, in and out
• The 'spread' - the difference between the buy price and the sell price offered by market makers
• 'Slippage' - if you're moving any kind of size, especially in less liquid markets (ahem, NFTs) your buy and sell orders will literally move markets
• 'Funding' - especially if you want to long, you will likely pay a % (usually per 8h) to your counter party

These fees put you at a disadvantage, but are actually just the surface level difficulties in creating a truly winning trading strategy.

Consider that trading is basically an information game, and one that (unlike poker) you cannot avoid playing with the very best in the world. John Doe who thinks he has an edge because he's watching the order book of his exchange often doesn't realise he's trading vs ridiculously advanced players, who might be watching the orderbooks of the top 20 exchanges, plus scanning the mempool for whale transactions on DEXes, plus arbitraging between all of these on a nano-second timescale (Flashboys by Michael Lewis is a highly readable introduction to this world).

While you may think you have an edge trading dogecoin because you have Elon Musk's twitter feed on notifications on your phone, you are likely competing with players who are monitoring reddit, twitter and discord via APIs and evaluating general sentiment via machine learning tools in real time. When someone tells you they have a winning trading strategy because reasons, you should be extremely skeptical of them. If that person is you, then you need to be ultra-skeptical, as of course you are the easiest person to fool.

If you can out-predict both the hive-mind and the algorithms, playing the right meta-game and predicting where the sauron's eye, hot ball of money will land next, the returns can be eye-watering. But, bear in mind that despite the survivors/OGs you see on Twitter, it's not child's play to turn 5 figures into multi-millions in months and that actually the odds against you succeeding are considerable.

2. Investing

While investing and trading have some overlap, I believe they are fundamentally different games. One main difference between the two is timescale - trading is a game where players are looking to capture upside from moves they expect to happen within hours or days, while investing involves looking to capture upside in token prices over months or years. The most in-demand VCs within crypto are known for buying and holding their tokens for the long haul, rather than actively trading/dumping those tokens on their followers when things aren't looking so good.

However what I'd say is the principle difference between the two is that investing can and should be a positive sum game, while trading is a zero-sum game. If you're investing in some protocol, it should hopefully be creating some product that people get value from using - i.e. it should offer some product or service for $X, where their customers get $Y dollars of value by using it, where Y > X. From the point of view of the protocol itself, it should be able to offer the service for $X while the true marginal cost to them is $Z, where Z is smaller than X. Like many technology products, crypto protocols are often pure code products with near 0 marginal cost of production once developed. In this way, the customer wins $Y-X, while the protocol wins $X-Z, value is created and everyone wins.

While this all sounds great in theory, usually when making crypto investment decisions you are not evaluating a perfectly functioning, competitor-less cash cow. Rather, you're evaluating a product that doesn't yet exist, perhaps also in a market that doesn't yet exist. For that reason investors are typically more concerned with the team they're investing in and perhaps the roadmap they've created/their track record in delivering on that roadmap so far.

As if this didn't complicate matters enough, as a retail investor it's important to realise that, while the information asymmetries aren't as stark as in trading, you are still operating at a significant disadvantage to professional investors. Not only do they get privileged access to token sales at much lower valuations than you can access as a retail investor, they can pick up the phone and speak to significant stakeholders within the operation, in a way which you obviously can't.

That said, I believe that investing is a significantly easier game to win at than trading - if you can filter out obvious scams/rugs, and manage your liquidity so that you're never a forced seller during a prolonged bear market, you'll hopefully survive long enough to benefit from the rising tide that eventually lifts all passably made boats. Especially if you develop the habit of contributing to those boats you're stuck in, which brings us to...

3. Building

I believe that building is the single most under-rated way to make it in crypto. Like investing, it has the property of being a positive sum game, but unlike either investing or trading, building offers a proposition where the most you can lose is the opportunity cost of your time. Even that cost, I would argue, looms larger in imagination that in reality, as even if you end up working on a project that fails, you will inevitably learn about the space and build yourself a network of useful people over time.

You might also think that building necessarily implies detailed technical knowledge, but this does not have to be the case - discord community managers/mods, meme lords, Twitter shit-posters and lore writers are some of the most in-demand people in the crypto world at the moment, so don't think that because you don't (yet) know how to code, this option is necessarily unavailable to you.

The two main downsides of building are - firstly, it requires authentic buy-in. Those who deep down believe crypto to be a fad or a scam will never stick around long enough to obtain a marketable set of building skills. If you go into this game with an extractive mindset, looking to recycle the work of others for a quick buck, you might succeed in doing so for a while, but your success will be short lived and bitter to the taste.

This ties into the second substantial disadvantage, that it requires significant time. Especially if you're starting from 0, it's unlikely you'll develop the skills required to contribute to cutting edge projects for at least a year or so. However, if you can stay the course, you'll find yourself with one of the most in-demand skillsets in the world, with the realistic prospect of helping society free itself from the middle-men who sit extracting rent between person to person transactions.

Highly paid, highly meaningful work.

Aka, the dream.

Obviously people can and do blur the lines between these games - Paradigm pioneered the investor/builder VC model, while retail traders are famous for taking a trade then extending the timeframe if things don't go their way (switching from trading to investing). But I believe it's important, especially for those just getting started in crypto, to think carefully about which of these games best suits them in terms of their skillset, their level of capital and their risk tolerance - by playing the right game for you, you stack the odds as far in your favour as they can be.

GL out there! :)