Avoiding Calamity In A Bear Market

The Bear Market Appears To Be On The Way

Some may actually say that the bear market is already in full swing and I would tend to agree, now that the $38K level has been breached. This has been the level that I have been discussing in my recent writings in regard to Bitcoin and levels to watch. I had hoped that perhaps if it broke, we would experience a scam wick that would later bounce back to the $38K level.

However, the dump appears to be too far, with the window of a reversal closing fast. Apart from a sudden pump out of nowhere, this appears to be a bearish trend gathering momentum. This signals the beginning of winter and one needs to be ready.

Buying The Dip

Looking back to the last Crypto winter, there are a few lessons that we can take away. One of them is, markets can always drop further. It is better to miss out on a few percent than to keep buying the dip in a bearish trend. Buying the dip when markets are bullish is an entirely different scenario. You cannot compare the two.

In a bearish trend, you want to instead wait for a confirmed bottom. Even in doing this, it can be extremely difficult to definitively call the bottom. However, it is better to attempt to analyze a bottom than to continue buying blindly. You will have a much better chance of not getting rekt this way. If you miss out on a move, you have not really lost anything. However, being premature can cost you quite dearly.

A Shift To Quality

I know many readers are new to the Crypto space and were perhaps not present in the previous bear market. One thing that became quite clear in the final months of the bear market of 2018/19 was the mortality rate. It is the survival of the fittest during a bear market and there are a few important pointers that help to identify the survivors. These all point towards a quality project, which can be broken down into a few key elements.

A Project With Actual Demand & Use Case

We need to understand that in surviving, we are not only looking for the project to “survive” but also maintain a position of being an “investment grade” asset. A project that continues to serve the needs of the community throughout a bear market stands a much stronger chance of survival than its counterparts.

Continued demand of an active community and user base is a very good indication that the project has what it takes.

Already Established Entities

Perhaps in the last bear market, some wondered whether Binance would be able to weather the storm. For those unaware, Binance only launched in 2017, which didn’t provide much time to establish itself prior to the crash. Years later there is no doubt regarding the future of Binance. The company has firmly established itself and continues to muscle through any and all market conditions.

Similar projects such as FTX, Polkadot, and others are also fairly well established now and have relevance in the Crypto world. This helps tremendously in that the world has already seen the impact. A project yet to deliver, for obvious reasons, will be much lower on the list of those willing to risk exposure in a bear market.

The Fragile & The Weak

On the other hand, there are projects with committed communities that make use of their services on a continuous basis. However, the project is small, as is the community. As volume and interest proceed to dwindle away in a bear market, the margins get smaller. There were a number of smaller exchanges that were quite popular amongst certain Crypto enthusiasts in 2018 and 2019 that are sadly no more.

The service was great, the product was good and yet they were just too small to survive the cold. TradeSatoshi and Virwox come to mind.

Low Capital Reserves

When activity across blockchains and Crypto-based projects drops, the show still needs to go on. Team members and developers still need to get paid. Marketing and other overheads don’t simply disappear. They are very much still present and not in hibernation, unlike much of the market. There were quite a number of ICOs in 2017, where projects amassed enormous amounts of funding that they kept in ETH. This move cost them dearly and in many instances was largely responsible for projects actually dying.

Vinny Lingham of Civic (CVC) managed to ensure conversion to USD shortly after their ICO concluded and so managed to secure a cash reserve that would support the project throughout the bear market. This needs to be a priority, as bear markets generally tend to take the market by surprise.

Conclusion

These are just a few pointers and aspects to keep in mind when analyzing your own personal portfolio and decisions. This is not investment advice but rather traits that I have personally seen be quite helpful in identifying the survivors. Have a great week, despite the blood. Who knows, we could bounce sooner than expected!

Leave a Reply

%d bloggers like this: