Cryptocurrency bear markets destroy portfolio value and have a dangerous tendency to last longer than anyone expects. Fortunately, one of the good things about market-wide pullbacks in altcoin projects like SHIB is that it gives investors time to refocus and spend time researching projects that could improve once the trend turns up again. In a bull market, everyone makes gains and thinks they are a very good investor. But how to invest during long downtrends? Here are five elements to focus on when deciding whether to invest in a crypto project during a bear market.
Why SHIB is trying to get rid of the meme coin tag: Use case and competitive advantage
As we have reported on Kriptokoin.com, flashy promises and fraudulent protocols are frequently encountered in the crypto money industry, however, there are only a handful of projects when it comes to creating a product that provides demand and benefits. When it comes to determining whether a token will continue to be held, one of the main questions to ask is “Why does this project exist?” If there is no simple answer to this question, or if the solutions offered by the protocol do not truly solve an immediate problem, it is likely that it will not gain the acceptance it needs in the long run for its survival. Where a valid use case exists, 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 its competitors, or is it just a redundant protocol that doesn’t really bring anything new to the table? The best example of this is the oracle sector of the market, where a handful of protocols have been launched in the last three years. Despite the growing number of options, Chainlink (LINK) is the oldest and most widely integrated Oracle solution and remains the strongest competitor in this space. Shiba Inu (SHIB), which is trying to get rid of the meme coin label, stands out as one of the altcoin projects that try to expand its usage area.
Does the protocol generate revenue and are there cash reserves?
“If you build, they will come” is a cliché swirling around in tech circles, but it doesn’t necessarily imply real-world adoption in the cryptocurrency industry. Running a blockchain protocol takes time and money, meaning that only protocols with revenue or adequate funding can survive a bear market. Determining whether a project is profitable and where the revenue is coming from can guide investors looking to purchase decentralized finance (DeFi) tokens. If a project is showing limited activity and income, this might be a good time to start assessing whether it is undervalued or an investment to be avoided.
Each venture must have a fund or treasury before investing; It is important to determine whether the project has sufficient funds to recover from downtrends, especially if generating returns on locked assets to attract liquidity is the primary incentive. As mentioned earlier, running a blockchain protocol is not cheap, and most of the protocols out there may not be liquid enough to survive a long bear market. Ideally, a DeFi-style project should have a large treasury containing various assets such as Bitcoin (BTC), Ethereum (ETH) and more reliable stablecoins such as USD Coin (USDC) and Tether (USDT).
Are the dates on the roadmap consistent?
While past performance is not necessarily an indicator of future results, a project’s history of following the roadmap and meeting key deadlines can provide valuable insight into whether it is prepared to withstand tough times. In addition to tracking roadmap milestones, it can be important for investors to monitor development frequency and developer activity for a protocol.
If a team is showing little or no signs of activity as roadmap deadlines come and go, consider the possibility of a slow rug pull and try to get out before more losses occur. It may be time to think it’s time to get out.
