5 metrics to monitor before investing in crypto during a bear market


Cryptocurrency bear markets destroy portfolio value they usually have a harmful tendency to pull on for longer than anybody expects. Happily, one of many silver linings of market-wide pullbacks is that it offers buyers time to re-focus and spend time researching initiatives that would thrive when the pattern turns bullish once more.

Right here’s 5 areas to give attention to when deciding whether or not to put money into a crypto mission throughout a bear market.

Is there a use case?

The cryptocurrency sector has no scarcity of flashy guarantees and gimmicky protocols, however when it comes right down to it there are solely a handful of initiatives which have delivered a product that has demand and utility.

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When it comes right down to figuring out if a token ought to proceed to be held, one of many most important inquiries to ask is “Why does this mission exist?”

If there may be not a easy reply to that query or the options provided by the protocol don’t actually resolve a urgent downside, there’s a good likelihood it gained’t acquire the adoption it wants long run to outlive.

Establish a aggressive benefit

Within the instances the place a viable use case is current, it is essential to contemplate how the protocol compares in opposition to different initiatives that supply options to the identical downside.

Does it supply a greater or easier resolution than its rivals, or is it extra of a redundant protocol that doesn’t actually deliver something new to the desk?

An excellent instance of pointless redundancy is the oracle sector of the market, which has seen a handful of protocols launched over the previous three years. Regardless of the rising variety of choices, the oldest and most generally built-in oracle resolution is Chainlink (LINK) and it stays the strongest competitor within the discipline.

Does the protocol generate income, and the way?

“When you construct it, they’ll come,” is a cliche expression tossed round in tech circles, nevertheless it doesn’t at all times translate into real-world adoption within the cryptocurrency sector.

Working a blockchain protocol takes money and time, that means that solely protocols with income or enough funding will be capable to survive a bear market.

Figuring out whether or not a mission is worthwhile and the place the income comes from will help information buyers who’re inquisitive about shopping for decentralized finance (DeFi) tokens.

Tasks with the very best protocol income. Supply: Token Terminal

If a mission reveals restricted exercise and income, it might be a superb time to begin evaluating whether or not it is undervalued or a funding that needs to be prevented.

Are there money reserves?

Each startup is supposed to have a battle chest, treasury or runway as previous to investing, it is essential to establish whether or not or not the mission has enough funds to outlive downtrends, particularly if offering yield on locked property is the first incentive for attracting liquidity.

As talked about earlier, working a blockchain protocol isn’t low cost, and the vast majority of the protocols on the market won’t be liquid sufficient to outlive a prolonged bear market.

Ideally, a DeFi-style mission ought to have a big treasury containing a wide range of property like Bitcoin (BTC), Ether (ETH) and extra dependable stablecoins like USD Coin (USDC) and Tether (USDT).

Having a well-funded and diversified treasury that may be pulled from throughout powerful occasions is essential and as $trawberry Sith suggests, initiatives have to be taught when to take revenue, and never depart a majority of the protocol treasury in Ether or the platform’s native token.

Associated: Major crypto firms reportedly cut up to 10% of staff amid bear market

Are roadmap deadlines saved and met?

Whereas previous efficiency just isn’t essentially an indicator of future outcomes, a mission’s historical past of following its roadmap and assembly essential deadlines can supply invaluable perception into whether or not it’s ready to endure powerful occasions.

Along with maintaining observe of roadmap milestones, websites like CryptoMiso and GitHub will help buyers peer behind the scenes to see the frequency of improvement and developer exercise for a protocol.

If a workforce is displaying little to no indicators of exercise as roadmap deadlines come and go, it could be time to contemplate the chance {that a} sluggish rug pull is happening and that it might be time to get out earlier than additional losses are realized.

This text doesn’t include funding recommendation or suggestions. Each funding and buying and selling transfer entails threat, and readers ought to conduct their very own analysis when making a call.

The views, ideas and opinions expressed listed here are the creator’s alone and don’t essentially mirror or signify the views and opinions of Cointelegraph.