The cold winter of digital currencies is not going to end and we still see that Bitcoin and other currencies remain in a downward cycle. It is a difficult time for most of the investors and almost everyone is thinking of ways to escape from losses. In the meantime, some are thinking of profiting from this falling market and do not intend to miss any opportunity. In the meantime, this question is raised “How to find winning currencies in this bear cycle and profit?”
In this article to help an essay Written from Coinmarketcap website, we want to answer the above question. For this purpose, we explain how investing in such a market should be and what indicators it is necessary to pay attention to. Stay with digital currency.
How to invest in a bear market?
Like many digital currency investors, you probably benefit from the appreciation of your assets; That is, you buy currency and wait for it to become expensive and then sell it. This strategy of gaining profit in rising or bull markets is quite simple and it works; But in a bearish market, there are very few currencies that move against the general downward trend in the market and thus make you profit; But the number of these currencies is not zero.
For example, in the previous bear market in 2018, which is considered one of the worst bear markets for digital currencies, a number of currencies were able to move against the downward trend of the market. At times, these currencies even reached many investors and gave them profit.
Also, the bear market of 2018 was a learning experience for those who thought long-term and held their assets. They were able to identify and maintain potential assets and make a profit. Needless to say, you have a hard way to identify these types of assets and you must use different strategies to increase your chances of success. Next, we will examine methods that can help you identify promising and profitable projects in a bear market.
Fundamental analysis of powerful assets
Assets with strong fundamentals tend to outperform assets with weaker fundamentals. Of course, it may not seem like this; Because these days currencies that are not very strong in terms of fundamentals have also achieved success.
One of these important fundamental features, especially in bear markets, is the use of tokens. If people have a compelling reason to buy or hold a token, regardless of skepticism and speculation, the demand for that token will likely increase and, as a result, its price will grow. Also, if the project has a good reputation and has shown a positive history in the past, token holders will be more willing to hold.
Important fundamental indicators
- Human Capital: Projects with a strong team and a successful track record are likely to perform better in the future.
- Financing: Poorly funded projects tend to perform poorly in bear markets. Many of these projects cover their budget deficit by selling their native tokens and collect the required capital; But on the other hand, projects with strong financing can take advantage of the opportunity created in the falling market and acquire assets that are undervalued. With this account, it is a wise thing to evaluate the financing of projects and digital currencies.
- Development: Both the number and quality of work of developers working on a project can indicate its strength or weakness. If a project also has a GitHub repository, it’s wiser to check its commit rate on GitHub to understand how much behind-the-scenes developers have been working on the project.
- The strength of the project community: The community of owners and loyal fans of the currency can also be a sign of its strength. Having a loyal community means that they support the project in difficult times and are ready to help it grow even more in good times. One of the simple ways to find out the amount of this index is to check the growth or decrease of the number of holders of that token in different periods and social media of the project and the level of people’s participation in them.
Investigating the economics of asset tokenization
Most digital currencies are inflationary, at least in the short term. In simple words, the number of tokens in their circulation increases over time and according to previous planning. Projects with highly inflationary token economy will suffer in bear markets. Since in a bearish market the weight of the buyer/seller is heavily in favor of the sellers, issuing more and more tokens can make the problem worse. When a token has 100% inflation in one year, its demand must also increase by 100% to keep its price stable. It goes without saying that doubling demand in a down market is extremely difficult.
So you should be aware of how much inflation the tokens have in the time frame you are looking for. This means you should review and analyze its token economy and token issuance plan (if publicly available). If the token release program is not available to the public, you should be careful; Because this is an alarm. The non-publicity of the token issuance program most likely means that the token will have dangerous inflation.
Most projects dedicate a section to the token economy on their website or blog or white paper and state it clearly. If a project does not do this, it is hiding something. Once you know what the future supply of the token is, you can think about its future market value and decide when to buy or sell the token in question.
Of course, it should be noted that the release schedule only shows the time when the tokens will be released, not when they enter the market; So you should not forget that other factors such as ecosystem rewards and marketing budgets and treasury tokens are also used if necessary.
Token burning mechanism to reduce inflation
The importance of token economy becomes stronger when we pay attention to projects with reward systems, such as income-generating games and yield farming. There are many examples of oversupply (inflation) that has disrupted the balance of supply and demand and ultimately caused the value of the token to fall. CAKE token in Pancake Swap platform and Green Satoshi token (GST) in Stepn project (STEPN) are two examples of these tokens.
There are many digital currencies that have a token burning mechanism and, accordingly, they introduce themselves as anti-inflationary; But few of them achieve this success in the short term. As a result, this issue can mislead investors who consider the decrease in supply to be the cause of the increase in the value of the token.
Analysis of historical asset performance
Past positive performance cannot be a sign of future success; But digital currencies that perform successfully in bearish periods often have clear reasons behind their success.
One of the simple ways to check performance history is to see how the digital currencies we are considering have performed during bear periods (such as 2018). Now this price performance can be compared to dollar or bitcoin or even other index currencies. We have to see how the value of the considered currency has changed in comparison with these assets.
Once we identify successful assets in a down market cycle, we can examine the reasons for their relative strength and success. If there are clear and decisive reasons for the success of a token, it is a sign that the development team knows very well how to maintain the utility and profitability of the token in a bear market.
BNB is a good example for this discussion. In 2018, the digital currency BNB lost about 27% of its value; While this number for other currencies was around 80%. The following year, 2019, the value of BNB grew by about 124%, much more than other assets.
The reason for this growth was not a strange factor: the Binance exchange used part of its profits to buy back and burn a large amount of BNB tokens to reduce the number of tokens in circulation. Meanwhile, Binance expanded the use of its BNB token with multiple IPOs on its platform, albeit only available with BNB.
Celsius token, an example of a violation of this issue
On the other hand, Celsius Token (CEL) is one of the examples of violations in this field. The CEL token shows users that they must research all the components of an asset before committing to its power. In this bearish market where most currencies are hibernating, the CEL token was able to grow by nearly 4,000% in the past months. Although this number seems staggering at first glance, when we research the coin further, we find out that Celsius has just filed for bankruptcy and is trying to manipulate the market for its token.
However, CEL’s bubble burst at the same time. When the price correction of this token started, many buyers who intended to buy it and profit from it were excluded from the field. So the power that this token showed in the three months ending in August 2022 (September 1401), wrong signal was and cannot be relied upon.
A bear market is a cycle that can happen every once in a while and affects almost all investors. Meanwhile, everyone is looking for ways to make a profit or escape a loss. Some are successful and some are unsuccessful; Because the level of knowledge of investors is different. In this article, we talked about the factors that you can consider to find strong projects in the blind bear market.
Be sure to pay attention to the fundamental strength of the project, including the team and community and its financing status. Also, check the amount of token supply and the timing of the release of new supply and be careful that the volume of token supply is not too large so that the value of the token falls. The past performance of the currency is also one of the important points that can show its strength to some extent; Of course, provided that it is checked along with other factors.
In the end, it is not bad to remind again that before investing, do your research completely and do not invest without reading and based on the advice of others; Especially in bear markets where prices are always falling. Don’t forget that you are responsible for your loved one’s money.