Cryptocurrency-bearing markets are destroying the value of a portfolio and they have a dangerous tendency to drag on for longer than anyone expects. Fortunately, one of the silver lining of market withdrawals is that it gives investors time to refocus and spend time researching projects that could prosper when developments return to normal.
Here are five areas to keep in mind when deciding whether to invest in a bear market.
Is there a use case?
The crypto sector does not lack conspicuous promises and gimmicks, but when it comes down to it, only a handful of projects have delivered a product that has demand and usability.
When it comes to deciding whether a signal should continue, one of the main questions to ask is “Why does this project exist?”
If it is not a simple answer to the question or the solutions that the protocol offers do not really solve an urgent problem, then there is a good chance that it will not get the approval it needs in the long run to survive.
Know the competitive advantage
In cases where there is a realistic case of use, it is important to consider how the protocol compares to other projects that offer solutions to the same problem.
Does it offer a better or simpler solution than the competition, or is it a more unnecessary protocol that does not really bring anything new to the table?
A good example of unnecessary oversupply is the oracle sector in the market, which has seen a handful of protocols put on the market over the past three years. Despite the growing number of options, the oldest and most widespread oracle solution is Chainlink (LINK) and it is still the strongest competitor in this field.
Does the protocol generate revenue and how?
“If you build it, they will come,” is a clichéd expression thrown around in tech circles, but that does not always mean recording in the real world in the cryptocurrency sector.
Running a blockchain protocol takes time and money, which means that only protocols with revenue or sufficient capital will be able to survive on a bear market.
Identifying whether a project is profitable and where the revenue is coming from can help guide investors interested in buying DeFi tokens.
If a project shows limited activity and income, it might be a good time to start assessing whether it is undervalued or an investment that should be avoided.
Is there cash?
Each startup is designed to have a coffin, treasure or runway and before investing it is important to determine if the project has sufficient resources to survive downturns, especially if providing a return on locked assets is the main incentive to attract liquidity.
As mentioned before, running blockchain protocols is not cheap and the majority of protocols out there may not be fast enough to survive a long bear market.
Every successful NFT project should bring in a crypto CFO / treasurer to diversify / keep the war chest in place, not just keep everything in ETH.
Projects need to know how to make a profit too.
– $ trawberry Sith (@StrawberrySith) May 10, 2022
Ideally, a DeFi-style project should have a large treasure that contains various assets such as Bitcoin (BTC), Ether (ETH) and more reliable stablecoins such as USD Coin (USDC) and Tether (USDT).
Having a well-funded and diverse treasure that can be reached at the touch of a button is extremely important, and as $ trawberry Sith suggests, projects need to learn when to make a profit, but not leave the majority of the booking fund in Ether or the platform’s original symbol. .
Connected: The big cryptocurrencies say they have cut up to 10% of employees within the bear market
Is the roadmap time limit maintained?
Although past performance is not necessarily an indication of future success, the history of a project to follow the roadmap and meet important deadlines can provide valuable insight into whether it is ready to endure difficult times.
In addition to managing roadmap milestones, sites like CryptoMiso and GitHub can help investors look behind the scenes to see the frequency of development and development activities for the protocol.
If a team shows little to no activity as roadmap deadlines come and go, it may be time to consider the possibility of a pull-through and it may be time to get out before further losses occur. to reality.
This article does not include investment advice or advice. Every investment and business involves risk and readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are the sole responsibility of the authors and do not necessarily reflect or represent the views and opinions of the Cointelegraph.
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