A crypto analyst who bought Solana for under $2 and sold for over $230 shares his framework for early detection of strong projects and 6 altcoin projects he is currently betting on. Derek Lim, head of crypto insights at Bybit, the third-largest crypto derivatives exchange by open interest and trading volume, according to CoinGecko rankings. cryptocoin.com compiled for our readers.
Derek Lim’s introduction to the crypto world
As Bitcoin soared to $20,000 in the fourth quarter of 2020, Derek Lim, then a full-time teacher in Singapore, made his high-risk career transition to crypto full-time. As a newbie in the kaleidoscopic space, he has tinkered with what he calls ‘social trading’, a glorified phrase that describes crypto trading based on social media chats and word-of-mouth advice from friends.
Derek Lim said in an interview, “I didn’t really know what I was doing. I didn’t really care about on-chain metrics or technical analysis,” he says. In a raging bull market, everything was in sight and everything had nowhere to go but to go up. As Derek Lim dived deeper into the wild west of crypto, he began to pay attention to the fundamentals and look for frameworks that could help him identify promising projects early on.
Bought Solana for under $2 and sold for over $230
One of the concepts he clicked early on is the Blockchain trilogy. The phrase, coined by Ethereum co-founder Vitalik Buterin, refers to three issues that often impact Blockchain layers: decentralization, security, and scalability. While a perfect Blockchain network could theoretically be decentralized, secure and capable of supporting an enormous amount of transactions, balancing the three proved difficult, as evidenced by Ethereum’s high gas fees and network congestion.
However, Ethereum’s scalability issues have been a huge boon for rival layer one protocols trying to solve the triad. This is how Derek Lim started buying Solana (SOL) for $1,474 to $1,944 in the last three months of 2020. On behalf of a team of friends, he invested five figures in the SOL token, which was quite obscure at the time. The famous Stock Exchange Manager says:
It was Solana who really powerfully unpacked the trilogy. Personally, I don’t believe in diversifying too much in this area. If you are extremely confident in a game, I believe in investing heavily for more substantial results.
According to Derek Lim, unlike Bitcoin’s Proof of Work (PoW) model or the Proof of Stake (PoS) consensus mechanism used by other Blockchains, Solana’s Proof of History (PoH) mechanism is designed without sacrificing decentralization and security. It allows ultra-fast transactions.
While the jury is still undecided on whether Solana has successfully resolved the Blockchain trilogy given the string of network crashes and outages, the SOL token has exponentially rallied to around $260 over the past year. Seeing the falconry of global central banks as a sign of short-term headwinds, Derek Lim began selling SOL holdings between $230.75 and $247.39 in November and December last year.
Altcoin projects he is currently betting on
As the macro headwinds continue to look big, Derek Lim expects more price corrections to hit major cryptocurrencies in the short term:
Whether it’s escalating interest rates around the world or geopolitical tensions, the macro side of things is certainly more volatile. While on-chain metrics have been bullish over the past few months, I think macro sentiment has overruled many of these bullish signs.
No matter how bleak the outlook, short-term signs of weakness can create long-term buying opportunities. Given how much the crypto market has evolved since late 2020, Derek Lim no longer thinks the Blockchain triad works to identify strong future projects, although it is still an important concept for evaluating smart contract platforms.
These days, he pays a lot of attention to trends that may emerge as larger investment themes. One of the trends he has identified is the resurgence of decentralized finance (DeFi) apps, which have been in a bear market since hitting all-time highs. Derek Lim says he is looking for DeFi applications with strong ecosystems and value accrual frameworks.
Another trend on his radar is metaverse-linked altcoin projects. Rather than being stuck in the usual virtual worlds, he likes ambitious projects that give investors a stake in the future before the metaverse becomes omnipresent. For example, social tokens and music tokens fall into this category.
Based on these trends, Derek Lim says he is betting on tier one altcoin projects including Fantom (FTM), Terra (LUNA), Avalanche (AVAX), and Cosmos (ATOM). In the midst of the ongoing second-tier boom, Lim also likes Metis (METIS) as a short-term game, as the network is yet to receive strong venture capital support. He adds that he will try to get out of his entire position by April or much earlier.
For now, Derek Lim is producing yields via METIS on a pool of yield farms, which he says produces a triple-digit annual percentage yield. According to CoinGecko data, the METIS token has fallen by 50% in the last month despite rising 27% in the last two weeks, but the yield farming strategy serves as an effective hedge to its position. Another bet by Derek Lim is Beethoven X (BEETS), a little-known decentralized investment platform.
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