Bear markets are not fun. But cycles happen in all markets across the global economy, including crypto. If you get sad, look up bitcoinisdead.org.
Since crypto was established, it has followed an identifiable pattern, with a bear market emerging roughly every four years. Despite the occasional long downward turn, the overall value of the market continues to grow in the long run.
As we reach mass adoption of crypto, this pattern of boom and bust may stop being valid. The fact that the end of previous bull cycles ended with a sense for many that this could be the end of crypto altogether, meant that it took years to restore the faith of many retail investors.
This may not happen this time. There has been too much institutional investment for investors to believe that crypto is gone for good.
However, macroeconomic conditions and negative investor sentiment mean that a crypto winter could last for years.
With that in mind, the most important thing to do in a bear market is to think about the big picture.
The Big Picture
The crypto market is only a little over 10 years old, making it relatively new. There are risks to every new asset class and technologies. We see this time and time again. As the industry matures, these market swings and volatility typically reduce.
This month, the crypto market is experiencing double-digit percentage losses, with BTC and ETH dipping below $30,000 and $2,000, while the general market sentiment has also been rocked by the recent UST and LUNA fiasco.
It’s not easy to hold your nerve. But with proper planning, you can continue to build products and technology through the bear market.
Here are some steps to consider to make the most of this bear market opportunity.
Builders will keep building
Do not panic and get your house in order
Budget and track expenses wisely. Trim any access spending. Travel budget, legal, software subscription, every bit counts. Hunker down and talk to your team to get everyone on the same page.
Raise if you can to get past 2–3 years of runway
No one knows how long a bear market will last, but you want enough runway to build a sustainable business that will see you through to the other end.
Capital is still being deployed from investors, but at a much more conservative rate. Projects with intent to build products and sustainable business can still raise if you know exactly what you’re about and are aspirational, but transparent in how you pitch.
Expect valuations to come down and don’t panic when it happens. Lasting through the bear market while being able to build is half the battle.
Understand the risks of operating a treasury — e.g. where you place your cash
With the UST-LUNA death spiral, regulatory scrutiny may be coming for stablecoins. Keep in mind that it will prove to be a good thing in the long-term as it will build trust in crypto, drawing previous sceptics to it.
Most importantly, make sure that your stablecoin holdings are well diversified.
Understanding the risks of the DeFi protocols and infrastructure where you put your stablecoin is vital if you want to use them productively. Know what risk parameters to look for, and be ready to take action.
Do not leave coins on exchanges
During tumultuous times, such as a raging bear market, exchanges can end up insolvent.
This has happened many times in the past, think Mt. Gox, QuadrigaCX and Cryptopia etc.
So, use a battle-tested, open-source hardware wallet and multsig for treasury management — Gnosis Safe is a great way to go.
Remember, the mantra, “Not your keys, not your coins” always, always applies.
BTFD with dollar-cost averaging (not financial advice)
People with a reserve or dry powder can “buy the dip” (e.g. BTFD). While BTFD can be done in a single trade, it can be hard to time the market and to know when an asset has bottomed out. So, instead of spending all your money in one go, it usually works out better to buy a small amount and wait to see if the asset falls in price further.
DCA involves breaking up your reserve funds into smaller tranches and making several trades over time.
For a treasury that needs ETH for on-chain operations for instance, you should plan out how much ETH you may need over the next few months and DCA in.
Understand and diversify protocol tokens/assets
Many DAOs may have accumulated other protocol native tokens via token swaps, ecosystem rewards, partnerships, or grants to pay for services.
As this treasury grows, you’ll want to perform rigorous due diligence first on each crypto asset you intend to hold through the bear market. Things to look at include, but are not limited to:
- Previous all time high: where are we compared to that with the asset
- Fully Diluted Value (FDV)
- Exposure ratio: making sure you’re not over exposed to one protocol (especially if it’s not your own protocol) or ecosystem
The most important thing to do in a bear market is to think long term. In the short-term, batten down the hatches and make good, well-researched decisions. If you believe in the concept of a decentralized financial system, you know that crypto will make a comeback. Be patient, focus on that belief, and keep building. Soon, your Web3 project will be changing the world.