An options trader who bought bitcoin at $3,000 breaks down the 'lead-lag strategy' that he deployed to generate big profits — and shares one of his favorite digital-asset tokens

Pulsar Trading Capital

When bitcoin briefly dipped below its key support level of $30,000 earlier this week, Martin Cheung, a 12-year trading veteran, was unfazed. 

"No one can guess where the bottom is. Trading is all about risk management," the options trader at Hong Kong-based crypto trading firm Pulsar Trading, said in a recent e-mail interview. 

Cheung, who first bought bitcoin in 2017 at around $3,000 for his personal investment, knows a thing or two about risk management. 

"Never invest all your investment in one go, split them into portions. If it goes lower, buy more," he said. "For example, if you take only 5% to 10% of your net asset to invest, if it runs 10x or 20x in the next 10 years, it is going to be a lot better than your pension fund."

Over the very long term, he holds the same outlook on bitcoin price as famed Ark Invest CEO Cathie Wood, who projects the largest cryptocurrency to reach $500,000 and achieves a market cap of $10 trillion. 

Cheung, who believes that Ark's aggressive price target is "definitely achievable," is not perturbed by the recent crypto price slump either. He shares five observations that indicate the health and growth of the crypto ecosystem.

Unlike the previous cycle, the number of people who own cryptocurrency worldwide has now has risen to around 2%-3% from about 1% three years ago, according to Cheung. Their rising popularity should add to global payment efficiency given crypto's "decentralized and borderless" nature. 

Another sign of health is the number of transactions going through the chains such as ether (ERC20), BNB (BSC), Harmony ONE (HRC20), and some of the layer-2 solutions. He noted that the volumes on these blockchains are all going through the roof and growing healthier.

Investors should also bear in mind that bitcoin went from $10,000 to over $60,000 in less than a year. Instead of seeing transaction volumes fall off of a cliff in the last multi-year bear market, Cheung is still seeing huge volumes in activities linked to decentralized finance and non-fungible tokens. 

"For 2021, I don't expect a lot of hot money will enter the bitcoin market, so I don't expect a big bull market ahead," he said. "Instead, I believe its prices will still be going up slowly and healthily, $40k to $50k is the level I would be looking at."

In the near term, Cheung likes to deploy the so-called lead-lag strategy, which would require traders to use more fundamental analysis and quantitative research.

For instance, when bitcoin was leading the crypto market in October last year, investors and traders were laser-focused on the largest cryptocurrency for profit opportunities. That's exactly when Cheung started buying altcoins, which didn't start surging until January or February this year. 

The early entry into altcoins and digital assets tokens ended up being one of his "very profitable strategies."

Another way he executed the strategy was when Binance Coin (BNB) experienced its first wave of surge from around $30 in October last year to $300 in March. During the same period, there were a lot of laggers in the centralized exchange tokens sector such as FTX token (FTT), OKB (OKB), Huobi Token (HT), which ended up moving up months later. 

"To give you an example, if you see bitcoin is up 10% today and ether is doing nothing," he said. "If you believe in the lead-lag strategy, then you would buy ether and expect 10% gain."

Cheung has no doubt about bitcoin's dominance in the crypto market, but he personally likes tokens of blockchains built on the proof-of-stake system for the simple reason that they are more environmentally friendly. 

He is also bullish on tokens that seek to solve the ecosystem problems such as slow transaction speeds and hefty transaction costs, etc. 

Cheung said Harmony (ONE) is one of his favorite tokens. The blockchain platform, which is created to facilitate the use of decentralized applications, seeks to create blocks in seconds and charge 100 times lower fees. 

He adds that there are a lot of reasons to like the layer-one chain, which is "fast, cheap and greatly undervalued at this level." He expects to see "multi-fold returns" from the token. 

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