Cryptocurrency bear markets deplete portfolio value and have a dangerous tendency to drag on for longer than anybody anticipates. Fortunately, one of the many silver linings of a market-wide decline is that it allows purchasers to refocus and explore efforts that will prosper once the pattern turns bullish again. Here are three things to consider when determining whether or not to invest in a cryptocurrency project during a bad market.
1. Identify a competitive advantage:
Assessing how the protocol stacks up against other initiatives that address the same issue is critical when a valid use case exists. Is it a better or more straightforward solution than its rivals, or is it only a redundant protocol that adds nothing new?
The oracle market, which has had a handful of protocols introduced over the last three years, is an excellent example of unneeded redundancy. Despite the expanding number of choices, Chainlink (LINK) remains the strongest rival, the industry’s oldest and most widely integrated oracle solution.
2. Are there cash reserves?
Every company should have a war chest, cash flow, or a lead. Before investing, it’s critical to determine whether the project has enough finances to weather downturns, especially if the performance of stranded assets is the primary motivation for attracting funding.
As previously said, operating a blockchain protocol is not inexpensive, and the bulk of existing systems may not be liquid enough to withstand a prolonged down market. A DeFi-style project should ideally include a huge treasury with a range of assets such as Bitcoin (BTC), Ether (ETH), and more stable coins such as USD Coin (USDC) and Tether (USDT) (USDT).
It is critical to have a well-funded and varied treasury that can be mined at contact times, and projects must understand when to use it and not leave the bulk of the protocol treasury in Ether or the platform’s native token.
3. Is there a use case?
There are plenty of bright promises and clever protocols in the bitcoin sector, but only a few ventures have provided a product with demand and usefulness. One of the most important questions to ask while deciding whether or not to keep a token is, “Why does this project exist?”
There is a strong possibility that the protocol will not gain the acceptance required if there is no easy response to this issue or if the answers supplied do not truly tackle an urgent problem. Long-term survival is required.
Use these three indicators to examine the scenario when investing in a new cryptocurrency, and you should have a clearer understanding of how feasible your investment is. The most significant measure will always be market capitalisation but look at the others to see if your crypto selection has a promising future. For more information, you can contact Sir Patrick Bijou as he has a lot of experience in this field.