Strategizing Investments Amidst the Bear Market: A Crypto Perspective
Strategizing Investments Amidst the Bear Market: A Crypto Perspective
Navigating Market Downturns: A Roadmap for Crypto Resilience and Growth
As we navigate the volatile waters of cryptocurrency markets, the need for a sound bear market strategy has never been more apparent. Drawing from my past experiences and observations of cyclical patterns, I firmly believe in the inevitability of another bull market, irrespective of current sentiments towards cryptocurrency.
The landscape is rife with fear, uncertainty, and doubt (FUD), with governments mulling over cryptocurrency bans, concerns over Tether's stability, and persistent skepticism labeling cryptocurrencies as scams. However, the increasing influx of developers venturing into the crypto space is a testament to its promising future.
As the world grapples with economic uncertainties, the crypto industry is steadily building its foundation, albeit not as decentralized as one might hope. This creates a bullish case for Bitcoin and other cryptocurrencies, fortifying their positions in the global financial landscape.
Reflecting on the last bear market, my foray into Uniswap and Decentralized Finance (DeFi) wasn't motivated by the prospects of airdrops - a concept unfamiliar at that time - but rather fueled by my passion for innovative technology. While a 'Dollar Cost Averaging' (DCA) strategy yielded substantial profits during the subsequent bull run, I couldn't help but acknowledge the missed opportunities for greater gains.
This realization spurred me to devise a more strategic approach to leverage my capital. In this article, I am eager to share this refined bear market strategy, hoping it provides valuable insights to navigate the volatile crypto markets.
Put my assets to work
In bull markets, it's crucial to accumulate assets such as Bitcoin (BTC), Ethereum (ETH), and a significant amount of stablecoins to weather potential bear markets. However, merely holding these assets without leveraging their potential is a missed opportunity.
The majority of my stablecoins are actively farming tokens on Decentralized Finance (DeFi) platforms like ReactorFusion and Curve. This approach, while promising, does come with its risks. Therefore, it's not advisable to allocate all your assets to a single DeFi protocol.
In my view, DeFi is currently undervalued and overlooked by many, presenting a prime opportunity to amass more assets and lend cryptocurrencies through smart contract platforms.
The recent substantial dip in Total Value Locked (TVL) across all protocols marks an opportune moment to accumulate governance tokens. Despite some tokens exhibiting poor tokenomics and significant inflation, a good Annual Percentage Yield (APY) on stablecoins or ETH makes the governance tokens an added bonus. Some of these tokens may carry considerable upside potential for the next bull market, making them a worthwhile consideration in a diversified portfolio strategy.
Here are a few of the protocols I'm currently investing in:
ReactorFusion - ZkSync Era
Curve Finance - Polygon
AAVE - Optimism and Arbitrum
Convex - Polygon
As an investor, it's crucial to always be mindful of the inherent risks involved in these platforms. While protocols such as AAVE and Curve have proven themselves over time, no investment is without risk. This includes potential smart contract vulnerabilities and risks associated with stablecoin depegs. Therefore, always exercise due diligence and prudence while diversifying your investments across these platforms.
Stack Sats
Historically, Bitcoin has proven to be a resilient force driving successive bull markets, especially during bearish phases. The simplicity and robustness of Bitcoin, with its fixed supply, inspires a sense of confidence, making it a dependable asset for long-term holding. While it may not offer the exponential growth potential of some volatile altcoins, its stability prevents drastic losses, aligning well with my long-term investment approach. Hence, I continually invest in Bitcoin using a 'Dollar Cost Averaging' (DCA) strategy with fiat currency.
The halving event, an integral part of Bitcoin's economic model, significantly influences my conviction in its long-term prospects. This event, expected in 2024, will reduce the block rewards by half, essentially limiting the supply of Bitcoin.
My high volatility stack
While I am generally conservative with my portfolio management, I allocate about 10% of it to high-risk assets, understanding that they could yield substantial rewards or potential total losses. Most of these assets, including CRV, STG, RF, and others, are farmed from lending pools. Some tokens like ENS, OP, and ARB, I have received through past airdrops.
I find the narrative around Layer 2 solutions compelling, particularly in light of Ethereum's rollup-centric roadmap. Even though Layer 2 tokens may have high inflation and lack the gas utility inherent in Ethereum or Matic, they are nonetheless crucial for decentralizing governance within their ecosystems. Their value will become more evident once challenges associated with centralized sequencers are resolved.
That said, I uphold my conservative stance by not selling my ETH for these tokens, preferring to farm them instead. The sole exception has been Synthetix (SNX), which I purchased due to my admiration for their execution, governance model, and roadmap.
The Emergence of Liquid Staking Derivatives (LSD)
LSD is a concept I firmly believe holds significant future potential, given its increasing adoption by various DeFi protocols such as Lido or Rocket Pool. The importance of decentralizing Ethereum cannot be understated, and LSD plays a pivotal role in this effort.
In addition to running an Ethereum validator, my plan involves setting up several Rocket Pool minipools, each with 8 ETH, to continue generating yield on my Ethereum holdings. The anticipation of Ethereum becoming even more deflationary with the enablement of Miner Extractable Value (MEV) burns on the network underscores this strategy. While this evolution might take time, my long-term perspective nullifies concerns about immediate returns.
I've also made investments in Arrakis Finance vault using the wstETH/WETH pool. This strategy aims to limit impermanent loss while generating an 8% reward APY on the OP token, courtesy of Optimism incentives.
In addition to these investments, I hold positions in Uniswap V3 pools with LSD tokens, further diversifying my high-volatility stack.
The Long-Term Potential of NFTs
Non-fungible tokens (NFTs) hold a prominent position in my long-term investment strategy. I firmly believe in the crucial role NFTs are playing, and will continue to play, in shaping Web3 and DeFi in the years ahead.
However, bear markets can be challenging, and despite successful flips in the previous bull run, I currently hold several underperforming NFTs. This underperformance is part and parcel of the volatile NFT market and doesn't overshadow their long-term potential.
One standout NFT in my portfolio is a Pudgy Penguin. My confidence in its creator, Lucas Netz, coupled with my intention to build my personal brand around it while developing bonsai.finance, makes this a particularly significant investment.
This NFT investment is more than financial; it's an integral part of shaping my digital identity on the blockchain - a key success factor in the Web3 space.
I also believe that NFT merged with DeFi has a huge upside potential so there is great ideas to build on projects in that topic.
Starting From Scratch in Crypto
Reflecting on my past experiences, I firmly believe that now could be a favorable time for newcomers or those with modest holdings to enter the crypto market. While this isn't financial advice, a sensible starting strategy might be to gradually build a portfolio comprising 70% Bitcoin (BTC) and Ethereum (ETH), then slowly diversify as your holdings increase. You can put your ETH to work by generating yield on the DeFi protocols mentioned earlier, but always bear in mind the associated risks, much like keeping money in a traditional bank account.
Cryptocurrency is here for the long haul. If you approach it with a long-term investment mindset, the probability of success is high. It's essential to note that I'm not a guru offering definitive investment guidance. My love for innovation and decentralized finance drives my passion for this space. Ultimately, your success hinges on self-driven decisions, building a robust network, and constructing a solid portfolio that lets you sleep peacefully at night. There are endless opportunities, even in bear markets.
The common complaint of high Ethereum fees no longer holds true, thanks to Layer 2 solutions. Most EVM protocols now operate on Layer 2s, and you can deposit funds to L2's via platforms like Coinbase, then bridge to the blockchain of your choice. This has significantly lowered entry barriers, opening up the crypto space to a wider audience.
I hope you found this article enlightening and valuable. For more insights into DeFi and Crypto, please follow me on Twitter and subscribe to this newsletter. I post one to two articles per week, aiming to provide useful content to help you navigate the fascinating world of crypto. Thank you for your time and attention - I look forward to connecting with you further!
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Disclaimer: Please note that I'm not a financial advisor. The content herein is provided for informational purposes only and should not be construed as financial advice. Always perform your own research and consult with a qualified professional before making any investment decisions.