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

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Cryptocurrency bear markets destroy portfolio worth they usually have a harmful tendency to tug on for longer than anybody expects. Luckily, one of many silver linings of market-wide pullbacks is that it offers traders time to re-focus and spend time researching tasks that would thrive when the development turns bullish once more.

Right here’s 5 areas to concentrate on when deciding whether or not to spend money on a crypto challenge 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 all the way down to it there are solely a handful of tasks which have delivered a product that has demand and utility.

When it comes all the way down to figuring out if a token ought to proceed to be held, one of many fundamental inquiries to ask is “Why does this challenge exist?”

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

Determine 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 tasks that supply options to the identical downside.

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

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 answer is Chainlink (LINK) and it stays the strongest competitor within the discipline.

Does the protocol generate income, and the way?

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

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

Figuring out whether or not a challenge is worthwhile and the place the income comes from might help information traders who’re considering shopping for decentralized finance (DeFi) tokens.

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

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

Are there money reserves?

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

As talked about earlier, working a blockchain protocol isn’t low-cost, and nearly all of the protocols on the market may not be liquid sufficient to outlive a prolonged bear market.

Ideally, a DeFi-style challenge ought to have a big treasury containing a wide range of belongings 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 robust instances is essential and as $trawberry Sith suggests, tasks must study when to take revenue, and never depart a majority of the protocol treasury in Ether or the platform’s native token.

Associated: Main crypto companies reportedly minimize as much as 10% of employees amid bear market

Are roadmap deadlines stored and met?

Whereas previous efficiency is just not essentially an indicator of future outcomes, a challenge’s historical past of following its roadmap and assembly essential deadlines can supply precious perception into whether or not it’s ready to endure robust instances.

Along with holding monitor of roadmap milestones, websites like CryptoMiso and GitHub might help traders peer backstage to see the frequency of improvement and developer exercise for a protocol.

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

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

The views, ideas and opinions expressed listed below are the writer’s alone and don’t essentially mirror or symbolize the views and opinions of Cointelegraph.

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