Cryptocurrency bear markets destroy portfolio value and they’ve a harmful inclination to tug on for over anybody expects. Fortunately, among the silver linings of market-wide pullbacks is it gives investors time for you to re-focus and spend some time researching projects that may thrive once the trend turns bullish again.
Here’s five areas to pay attention to when deciding whether to purchase a crypto project throughout a bear market.
What is the use situation?
The cryptocurrency sector doesn’t have lack of flashy promises and gimmicky protocols, but as it pertains lower into it there are just a number of projects which have delivered something that has demand and utility.
As it pertains lower to figuring out if your token should continue being held, among the primary questions you should ask is “Why performs this project exist?”
If there’s not really a simple response to that question or even the solutions provided by the protocol don’t really solve a pressing problem, there’s a high probability it will not gain the adoption it requires lengthy term to outlive.
Identify an aggressive advantage
Within the cases when a practical use situation exists, you need to consider the way the protocol compares against other projects that provide methods to exactly the same problem.
Will it provide a better or simpler solution than its competitors, or perhaps is it much more of a redundant protocol that does not really bring anything a new comer to the table?
Among unnecessary redundancy may be the oracle sector from the market, that has seen a number of protocols launched in the last 3 years. Regardless of the growing quantity of options, the earliest and many broadly integrated oracle option would be Chainlink (LINK) also it continues to be the most powerful competitor within the field.
Will the protocol generate revenue, and just how?
“If you construct it, they’ll come,” is really a cliche expression thrown around in tech circles, however it doesn’t always result in real-world adoption within the cryptocurrency sector.
Operating a blockchain protocol takes money and time, and therefore only protocols with revenue or sufficient funding can survive a bear market.
Identifying whether a task is lucrative where the revenue originates from might help guide investors who want to buy decentralized finance (DeFi) tokens.
If your project shows limited activity and revenue, it might be a great time to begin evaluating be it undervalued or perhaps a investment that needs to be prevented.
Exist cash reserves?
Every startup is supposed to possess a war chest, treasury or runway as just before investing, you need to identify set up project has sufficient funds to outlive downtrends, particularly if supplying yield on locked assets may be the primary incentive for attracting liquidity.
As pointed out earlier, managing a blockchain protocol isn’t cheap, many the protocols available may not be liquid enough to outlive a extended bear market.
Every effective NFT project should generate a crypto financial manager/treasurer to correctly diversify/hedge their war chest, not only keep all things in ETH.
A task must understand how to take profit too.
— $trawberry Sith (@StrawberrySith) May 10, 2022
Ideally, a DeFi-style project must have a sizable treasury that contains a number of assets like Bitcoin (BTC), Ether (ETH) and much more reliable stablecoins like USD Gold coin (USDC) and Tether (USDT).
Getting a properly-funded and diversified treasury that may be pulled from during tough occasions is vital so that as $trawberry Sith suggests, projects should try to learn when you should take profit, and never leave most the protocol treasury in Ether or even the platform’s native token.
Are roadmap deadlines stored and met?
While past performance isn’t always an indication of future results, a project’s good reputation for following its roadmap and meeting important deadlines can provide valuable understanding of whether it’s ready to endure tough occasions.
Additionally to monitoring roadmap milestones, sites like CryptoMiso and GitHub might help investors peer under the surface to determine the regularity of development and developer activity for any protocol.
If your team is displaying virtually no indications of activity as roadmap deadlines appear and disappear, it may be time for you to consider the chance that a sluggish rug pull is happening which might be time to leave before further losses are recognized.
This short article doesn’t contain investment recommendations or recommendations. Every investment and buying and selling move involves risk, and readers should conduct their very own research when making the decision.
The views, ideas and opinions expressed listed here are the author’s alone and don’t always reflect or represent the views and opinions of Cointelegraph.