Cryptocurrency bear markets destroy portfolio value and they have a dangerous tendency to drag on for longer than anyone expects. Fortunately, one of the silver linings of market-wide pullbacks is that it gives investors time to re-focus and spend time researching projects that could thrive when the trend turns bullish again.
Here’s 5 areas to concentrate on when deciding whether or not to make investments in a crypto mission during a bear market.
Is there a use case?
The cryptocurrency sector has no scarcity of flashy guarantees and gimmicky protocols, however when it comes down to it there are solely a handful of initiatives which have delivered a product that has demand and utility.
When it comes down to figuring out if a token ought to proceed to be held, one of many most important questions to ask is “Why does this mission exist?”
If there may be not a easy reply to that query or the options provided by the protocol don’t actually clear up a urgent downside, there may be a good probability it received’t acquire the adoption it wants long run to survive.
Identify a aggressive benefit
In the instances the place a viable use case is current, it is necessary to think about how the protocol compares towards different initiatives that supply options to the identical downside.
Does it provide a higher or less complicated resolution than its rivals, or is it extra of a redundant protocol that doesn’t actually carry something new to the desk?
A very good instance of pointless redundancy is the oracle sector of the market, which has seen a handful of protocols launched over the previous three years. Despite the rising variety of choices, the oldest and most generally built-in oracle resolution is Chainlink (LINK) and it stays the strongest competitor in the sphere.
Does the protocol generate income, and the way?
“If you construct it, they are going to come,” is a cliche expression tossed round in tech circles, but it surely doesn’t all the time translate into real-world adoption in the cryptocurrency sector.
Operating a blockchain protocol takes money and time, which means that solely protocols with income or adequate funding can be ready to survive a bear market.
Identifying whether or not a mission is worthwhile and the place the income comes from might help information buyers who’re in shopping for decentralized finance (DeFi) tokens.
If a mission reveals restricted exercise and income, it could be a good time to begin evaluating whether or not it is undervalued or a funding that needs to be averted.
Are there money reserves?
Every startup is supposed to have a struggle chest, treasury or runway as prior to investing, it is necessary to determine whether or not or not the mission has adequate funds to survive downtrends, particularly if offering yield on locked property is the first incentive for attracting liquidity.
As talked about earlier, operating a blockchain protocol isn’t low cost, and nearly all of the protocols on the market won’t be liquid sufficient to survive a prolonged bear market.
Every profitable NFT mission ought to carry in a crypto monetary supervisor/treasurer to correctly diversify/hedge their struggle chest, not simply maintain all the things in ETH.
A mission wants to understand how to take revenue too.
— $trawberry Sith (@StrawberrySith) May 10, 2022
Ideally, a DeFi-style mission ought to have a massive treasury containing a number of property like Bitcoin (BTC), Ether (ETH) and extra dependable stablecoins like USD Coin (USDC) and Tether (USDT).
Having a well-funded and diversified treasury that may be pulled from during robust occasions is essential and as $trawberry Sith suggests, initiatives want to be taught when to take revenue, and never depart a majority of the protocol treasury in Ether or the platform’s native token.
Related: Major crypto companies reportedly minimize up to 10% of employees amid bear market
Are roadmap deadlines stored and met?
While previous efficiency just isn’t essentially an indicator of future outcomes, a mission’s historical past of following its roadmap and assembly necessary deadlines can provide helpful perception into whether or not it’s ready to endure robust occasions.
In addition to preserving monitor of roadmap milestones, websites like CryptoMiso and GitHub might help buyers peer backstage to see the frequency of growth and developer exercise for a protocol.
If a group is displaying little to no indicators of exercise as roadmap deadlines come and go, it is likely to be time to think about the likelihood that a sluggish rug pull is going on and that it could be time to get out before additional losses are realized.
This article doesn’t include funding recommendation or suggestions. Every funding and buying and selling transfer entails threat, and readers ought to conduct their very own analysis when making a determination.
The views, ideas and opinions expressed listed below are the creator’s alone and don’t essentially replicate or symbolize the views and opinions of Cointelegraph.