Amid the bear market, one question prevails — where should you invest your crypto capital? Here's a guide to finding the winners.
Table of Contents
- Check for Strong Fundamentals
- Check out Tokonomics.
- Check Their Historical Performance
If you’re like most cryptocurrency investors, you primarily trade long – which means you only profit when the market value of your assets exceeds your entry price. be more
While this may be a relatively easy strategy to deploy in a bull market, it is much more difficult in a bear market, where very few assets manage to buck the overall downtrend.
But it is not impossible. While 2018 is often remembered as one of the worst bear markets in cryptocurrency history, dozens of assets not only bucked the trend, but thrived.
For those with long-term ambitions, past bear markets have also helped shine a light on more resilient assets, which have managed to hold their value while everything else has bottomed out.
While finding these projects is easier said than done, there are a handful of strategies you can use to increase your chances of success. We will explore them in more detail in this article, so keep your eyes peeled and don’t miss out.
Check for Strong Fundamentals
Though it might not seem like it — with the recent success of meme coins and all — fundamentally strong assets tend to perform better than fundamentally weak ones over the long term.
During bear markets, one of the most important fundamental features is the token’s utility. If there’s a good reason for people to want to buy/hold a token, besides simple speculation, there is always likely to be buyer-side demand. Likewise, if the firm behind the project has a strong reputation and is known to deliver, then current holders will be more content to continue holding.
There is a range of important fundamental indicators:
Human capital: Projects with a strong team of individuals with a long history of success tend to fare the best.
Funding: Poorly funded projects can have a tough time building throughout a bear market. Many have to meet the deficit by selling their own native tokens to raise funds. Conversely, projects with ample funding can use bear markets to scoop up top talent and acquire under-appreciated assets. As such, it might be wise to assess how well-funded your chosen projects are and stay on top of any recent funding rounds.
Development activity: Both the number and quality of developers aligned with a project can indicate its strength. If the project has a public GitHub repository, it can be prudent to track the rate of commits, since this can indicate the amount of work being done behind the scenes.
Community strength: A loyal and passionate community can be a sign of strength. This indicates that a project will be supported during tough times and well-positioned for further growth during good times. Some of the simplest ways to check this include tracking the growth/decline in the number of token holders and the project’s social media and community engagement.
Check out Tokonomics.
The majority of cryptocurrencies are inflationary – at least in the short term. This simply means that the number of tokens in circulation increases over time, usually defined by their vesting and unlock schedule.
As you might expect, projects with highly inflated toconomics can have a particularly difficult time during bear markets. With the buyer/seller balance already skewed towards the latter, wave after wave of token unlocks could exacerbate the problem.
A token that goes up 100% within a year would have to see its demand double just to stay at that price. Doubling demand in a bear market is no easy task.
In light of this, it is very important to know how your target tokens will grow over your time horizon. In practice, this would include examining its toconomics and analyzing its emissions schedule (if public). If it’s not public, that can be a red flag – as it often means the token is dangerously overpriced.
Most projects will provide an overview of their Tokonomics somewhere on their website, blog, or white paper — they have nothing to hide! Once you know how a token’s supply may change over time, you can begin to calculate its potential market capitalization at various price points and dates to match your entry/exit targets. can help you determine.
That said, it’s important to note that many issuance schedules only show when tokens will be released, not necessarily when they will enter circulation. It’s worth keeping in mind that things like ecosystem rewards, marketing budgets and treasury tokens can be used ad hoc.
The importance of toconomics is particularly evident when looking at projects with reward systems, such as games played for money and production farms. There are countless instances where hyperinflation has created an imbalance between supply and demand, resulting in devaluation. PancakeSwap’s CAKE token and STEPN’s Green Satoshi Token (GST) are two such examples.
Many assets claim inflation thanks to their burn-in mechanism, but very few actually do in the short term. This can deceive investors who mistakenly believe that a decrease in supply will increase the value of the token.
Check their historical performance.
While past performance is not always an indicator of future success, cryptocurrencies that perform well during market weakness often have clear reasons for their success.
One of the easiest ways to check this is to see how your chosen cryptocurrency has performed during bear market periods — such as the 2018 bear market. This may include performance against the US Dollar (USD) or their relative performance against Bitcoin (BTC) or another benchmark cryptocurrency.
Once you’ve identified assets that buck bearish trends, it’s a good idea to dive into the reasons for their relative strength. If there are clear, easily identifiable reasons for their success, that’s a good sign that the core team knows how to maintain utility and interest during a bear market.
BNB provides a perfect example of this. In all of 2018, BNB lost only 27% of its value, while most cryptocurrencies lost more than 80%. The following year (2019), it increased in value by 124% – blowing away other assets.
The reasons for this were simple: Binance was using a portion of its considerable profits to regularly buy back and burn a large portion of the BNB supply. Meanwhile, it was expanding the token’s utility by hosting a number of initial coin offerings (ICOs) on its Launchpad platform – which users could only access by holding BNB.
Conversely, Celsius (CEL) illustrates the importance of doing your research before jumping to conclusions about an asset’s strength. After all, despite the current bear market, CEL has gained close to 4,000% in the past two months. While this may be impressive at first glance, upon further investigation you will find that Celsius recently filed for bankruptcy, and continued attempts to manipulate the market are underway.
The bubble has already begun to burst, with a large price correction wiping out large numbers of participants who tried to share in the squeeze. Thus, its recent strong performance could be considered a false signal.
This article contains links to third party websites or other content ("Third Party Sites") for informational purposes only. THIRD PARTY SITES ARE NOT UNDER THE CONTROL OF CRYPTOGPT.COM, AND CRYPTOGPT.COM IS NOT RESPONSIBLE FOR THE CONTENT OF ANY THIRD PARTY SITE, INCLUDING ANY LINK TO, OR ANY CHANGES OR UPDATES TO, ANY THIRD PARTY SITE. . On a third-party site. CRYPTOGPT.COM is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation of any association with CRYPTOGPT.COM or its operators. . This article is meant to be used and should be used for informational purposes only. It is important to do your own research and analysis before making any material decisions regarding the products or services described. This article is not intended to be, and should not be construed as, financial advice. The views and opinions expressed in this article are those of the author and do not necessarily reflect those of CRYPTOGPT.COM. CRYPTOGPT.COM IS NOT RESPONSIBLE FOR THE SUCCESS OR CORRECTNESS OF ANY PROJECT, OUR INTENT IS TO SERVE AS AN Unbiased INFORMATION SOURCE FOR END USERS.