Forming an effective strategy to handle the crypto market volatility
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That is the question on the minds of many crypto investors right now.
If we must indulge our own question we are forced to answer that it is too early to say. The average length of a bear market is 289 days or 10 months, although the crypto winter lasted a few years. However, it does seem we could be headed for a bumpy ride over the coming months. One telling sign is that naysayers are receiving more coverage than optimists with price forecasts of bitcoin as low as $16,000. Gone are the days of the $100,000 and $500,000 bitcoin price predictions.
Another sign is from something called the ‘Fear and Greed Index.’ As the name suggests, the index measures fear and greed inherent in the crypto market. It has a value from zero to 100, where a value of zero means ‘Extreme Fear.’ Last month, the index was in the green for ‘Greed’ with a score of 73. Last week, it was at 20, representing Extreme Fear, and this week it is down at 13.
These signs would suggest sentiment is at an extreme low. So is it really too early to tell if we are in a bear market or a more appetizing dip? I am sorry to have to tell you the answer is not a satisfactory one. No one has a clue.
There could be two scenarios. The first one is the market will find a comfortable bottom, and growth will resume, continuing along the path of the bull run, a run which started in May 2020. The second scenario is the market continues its downward spiral for some time to come. The truth is no one knows what route the market will take, not even Elon Musk.
Who gives a shit anyway?
When you consider that after the halving of bitcoin in May 2020, the price of bitcoin rose to $9,999, initiating the bull run, and Ethereum’s price at the time stood at $188, you have to ask yourself, what is all the fuss about?
I saw a post on Twitter this morning that said, ‘What is causing these dips?’ The reality is, who gives a shit…
This novice investor has missed the point. Do you think Warren Buffet is examining his stock price on a daily basis? The answer is a resounding no. He focuses on what is in front of him now. He makes decisions for the long term, confident that the future will look after itself. And it usually does.
We have to take the same attitude. If we believe that cryptocurrency is the future, then we must make long-term investment decisions which means buying into quality projects with fundamentals. You then become less interested in the vagaries of the market and more concerned with ensuring you are invested in the best projects. If you are taking the alternative approach of investing in projects which could be classified as a fad, like the memecoin craze we are going through right now, then I can understand why you are checking your portfolio on a minute-by-minute basis. If you are making money following this strategy, I am pleased for you. But don’t delude yourself, you are not exactly investing in what many of us consider is the future, Web 3.0. If you believe blockchain is going to take over from the internet, a dip or a bear market is irrelevant to you. As they say, quality always floats to the top in the end.
Looking at the positives
We are in a far better place than the early investors back in 2018. Don’t forget bitcoin went as low as $3,100 then. However, the future isn’t bitcoin. Bitcoin was a starter for 10. Already bitcoin’s dominance is down to 40%, which has further to go. Someone recently described it as being the AOL in the early days of the internet. And we think they are spot on. The future is altcoins. And investors who have the foresight to invest in altcoins are in the right place because Amazon, Google, Facebook of the Web 3.0 world haven’t been discovered yet. Or if they have, there is still time to get in on the act.
It is the pioneers who have the arrows on their backs. It won’t be a smooth ride but investing in altcoins is still only a minority game. The big money is still to be made.
Words of wisdom
We must try to ignore the market volatility and focus on buying into quality projects which we believe are solving a real-world problem. Avoid the metoo projects and the memecoins. Focus on the famous inspirational words of Baron Rothschild,
“Buy when there’s blood on the streets, even if the blood is your own.”
That translates into buying quality assets below their true worth. A quick look at many of the leading crypto projects shows that their values are significantly below their all-time highs. If you have faith in these projects, then now is the time to buy.
Here is a quick sample of a few quality projects, comparing their current prices to their all-time highs:
- ETH -45%
- THETA -47%
- LINK -57%
- MATIC -49%
- DOT -59%
- COMP -65%
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The important question isn’t if we are in a dip or a bear market, it is, have we invested in quality projects at realistic valuations? The winners have still to be decided. It is highly likely that in a few year’s time, bitcoin will no longer be the most valuable cryptocurrency. It is also perfectly possible that other chains will take over from Ethereum or at least be offering a viable alternative. The winners will be the ones, which embrace mainstream adoption choosing to focus on easy-to-understand user interfaces. The average Joe is scared away by DEXs and the various DeFi apps doing the rounds. This will change as technology advances and as developers start listening to marketeers rather than the other way round.
The winners will be the projects that embrace the mass market. When Aunt Polly can find her way round Uniswap without pulling her hair out, that will be a strong indicator we have arrived. But in the meantime, this is a great time to search for the projects that will make that breakthrough. They are still out there.
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This article does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is high risk, and you could lose 100% of your investment. The article should be treated as supplementary information to add to your existing knowledge.