Welcome Anon! During uncertain market times it is essential to develop a strategy to get out of it alive. The whales want you to be dead before the market picks up again. Although “WAGMI” is a wonderful thing, for every trade there is a winner and a loser. Everybody can’t make it. So let’s dive into how you should approach these markets.
The crypto market has taken an aggressive downturn and the market is filled with fear. When Bitcoin was hovering around $46,000, the fear and greed index was at 16. So at this point, it is dead and it has become a meme. That’s how much pain people have encountered. Forgetting that we suffered a similar drawdown in the summer. Nonetheless, the markets have been on easy mode in the past year and a half and that won’t be the same going forward. Your resolve and patience will be tested, that doesn’t mean that the future isn’t exciting but your approach might have to change.
Bear markets, crypto winters, whatever you want to call them. They hurt. People have bad memories. New participants in the markets have not experienced anything like it. The Up Only times were fun, now fundamentals will play a bigger part. Are we in a bear market? That begs the question. However, how to navigate one should be of your utmost interest. No matter if we are in one or not. Life comes at you fast and this is no different.
Where will people go?
First of all, in normal cases of market uncertainty, people would flee from stocks to bonds. However, considering we have an inflation rate of 7% (real inflation is even higher but let’s not get into that) there are currently no returns on bonds. So where are people putting their money? Some might hold cash even though inflation is eating away at it. Others might argue real estate. However, the homeownership ratio is at 65% which is a worrying number considering the market normally crashes at around 64%.
Considering these circumstances, the best option would be stablecoins and DeFi. It does not come without risk. The U.S is looking to crack down on stablecoins and regulation over the DeFi industry is still a question mark. This opens the door for decentralized stablecoins which will experience exponential demand. If you wonder why you can read more about that here. Don’t forget that a crypto bear market is a bull market for stablecoins.
Also, with interest rates remaining at current levels, “balance sheet reduction will start in the background’ as stated by Mr. Powell himself. The Federal Reserve has painted itself into a corner, it will be interesting to see how they get out of it.
Prepare to be humbled
It is easy to scream buy the dip whenever the prices drop in a bull market because you expect it to pick up easily. However, thinking that one aggressive drop will be the end of it is a dangerous proposition. Maximum pain is not buying the dip and other people missing out because they sold. Instead, it is a slow grind down to death with consequent dips leaving you nothing but despair. You buy the dip and think you’ve caught the bottom until you see it go down 30% more. Is that something you’re ready for? Crypto bear markets teach you a harsh lesson: “If it has gone down 90%, remember that it can go down 90% more”(unsure of quote originator here, could be DeFiGod1. If you know help me out here).
Alright with that said, let’s relax on the pessimism. There are many reasons to be optimistic as well. This is the time to double down on your high conviction bets. There are projects out there that you wish you got into when the prices were cheaper. Don’t bail on yourself and make sure that you capitalize on the opportunities that are presented to you. When others panic, you drool. Because simply you have to be built different. So how do you approach this? Do you ape into them now when you have the chance? Absolutely not. I already mentioned the maximum pain scenario. What you do is that you position size. Frankly, you spread out your entries over time.
For instance, if you have $10,000 and want to buy a specific asset. You can spread it out over 5 purchases of $2,000 each to get yourself a good average. The reason is that if you put it all in one go and it dips further, you are out of dry powder. You should try to keep a bit liquid at all times in case opportunities present themselves. Nevertheless, this is easier said than done. Fighting our emotions is the hardest part of all of this so I will not claim that it is easy. I struggle with this at times as well.
Winners take it all
20% of the tokens survived from 2017. There are currently over 17,000 tokens in the crypto market. In other words, you have to find gems in a sea full of garbage. Considering the high amount of useless tokens flooding the industry, a lot of them have to die. It is clear that the market needs a cleanse. Obviously, all of them can’t survive. This is why you have to be sure about which ones you want to put capital in going forward. Because after a couple of years a lot of them won’t be there anymore. If you have some conviction but still have some uncertainty, de-risk. However, do not go to zero in terms of your allocation. If the market turns the other way you won’t forgive yourself. Instead, you will FOMO in at higher prices.
The winners will suck up value from the others. The value will flow to solid assets such as Bitcoin, Ethereum, and protocols that have genuine utility. One thing is different this time though. In the previous bear market, the other projects had no utility. It was all bark no bite. However, in this case, you have a lot of DeFi protocols that function properly and do their job. This gives you two possibilities:
The bear market won’t be as tough, more fundamentals are involved in this place.
You can comfortably yield farm and accumulate value overtime before the market picks up again.
This does have its risks of course. The first of them is smart contract risk. Considering the industry is at its infancy since DeFi boomed in 2020, there are still a lot of developments to be made. The second risk is the rug risk since you have to trust that the protocols won’t run away with your money or implode (see FrogNation). That is another reason why value will flow to reputable protocols that deliver on their promises, whereas underperformers will suffer more.
Moreover, bear markets create millionaires. So if you actually invest in the right protocols (easier said than done) then you will be handsomely rewarded. The new wave of innovative projects that get built in a bear market should not be taken lightly. I already mentioned that you have to be “built different” to survive. Well, the protocols that get built in a bear market normally live up to that standard. Choose wisely.
Build, Build and Build
Building is the best way to accrue value in a bear market. No matter if the price goes down, developers won’t stop building. Considering the possibilities of DAO’s everybody has the opportunity to get involved. There is literally a DAO for everyone. You simply have to enter with an open mind and be willing to provide value. From there, you will be rewarded in the DAO’s native token. If the project does something exciting with a good team you will know ahead of time because you were actually involved. If it stinks, then you can run. Nonetheless, it is a great way to get started. Also, in terms of a risk/reward perspective, the rewards clearly exceed the risk. To maximize opportunity, build.
It is also experience gained that you could use in a potential job search. Building in crypto opens up amazing opportunities, you just have to look for them. Why is building the best option? Because it does not take capital to start getting involved in projects. Bear markets can be painful and your wealth will go on a rollercoaster. No matter how blue-chip or how good your project is. The orange coin can mess it up. When Bitcoin nukes it nukes everything else along with it.
Nonetheless, you don’t care that your portfolio is far from its value in November because you were in it for the tech, right?
Author’s Words
I want to clarify that even though I am a finance professional, this is not financial advice, and this article is only meant to bring light to the current market situation. I advise everybody to do their own research, I only want to help you to find what you are looking for.
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