In a schedule a year, the whole crypto market capitalization more noteworthy than quadrupled from $361 billion to more prominent than $1 trillion in January — arriving at an unequaled unreasonable of round $2.6 trillion in Could. Basically weeks after the fact, more noteworthy than $800 million was cleared from the whole crypto market cap, addressing a lower of over 33%. Volatility of this greatness inside the crypto markets is the same old thing, especially for these fight tried by market patterns of years past. In any case, examination implies that the overall assortment of blockchain pockets clients raised by more prominent than 25 million since March 2020, which implies that is just the essential styler liner trip for 25 million new participants. For newcomers, volatility will be downright terrifying — nevertheless it doesn’t need to be.
Volatility breeds vulnerability
When the market is green across the board, everyone is a genius — lulling most into a false sense of invincibility and Warren Buffet-like investing acumen.
With well-researched positions and a long-term outlook, volatility can as a substitute function a chance to achieve publicity to belongings with excessive upside potential at a reduced value.
On the flipside, however, bleeding markets not only make us doubt where we stack up in relation to Elon Musk, but they really make us feel vulnerable. Downtrends expose the trader, the level of research and, most importantly, the conviction for the projects invested in. When green candles aren’t there to obscure judgement, projects are stripped down to their component parts and exposed for what they truly are. This initiates a moment of introspection for the trader, demanding a reevaluation of the overall investment thesis. If a project’s strength and competitive edge remains clear following a sell-off, this volatility should be viewed as a buying opportunity.
Project utility and community
Always ask: Is the project useful, and who supports it? Few things are more telling about a project than its proposed utility and the community behind it.
Conversely, if the first inclination amid a price correction is to panic-sell then, perhaps, conviction was tied more to price action than a project’s strengths and innovations.
One interesting example to highlight is everyone’s favorite: Dogecoin (DOGE). A quick stroll down memory lane reminds us that the controversial currency, which now trades at roughly $0.26 cents, was worth $0.002 in September 2019 despite having no perceived value. The critical word here is “perceived.”
Although “crypto purists” fall into fits of rage defending the honor of “real” cryptocurrencies with “real” utility, Dogecoin did something far more innovative than most give it credit for: It leveraged the community as its utility. You read that right. Those who have invested in the currency did so for three primary reasons:
To profit out of speculation.
A shared community experience.
To share in the joke.
Although the utility of Dogecoin is simple, don’t confuse it for having no utility. With simplicity comes ease of understanding, which has garnered DOGE massive mainstream appeal — a feat that many cryptocurrency projects still struggle to achieve even with strong utility. There’s a low barrier to entry in terms of understanding and price, and it’s easier to invest in a joke when Elon Musk and Mark Cuban are among those that find it funny. To that end, every crypto project should be able to simply communicate its value proposition, yet most projects cannot. Investing in hype is far more tied to price action than project quality or utility.
DOGE’s utility can be easily understood and simply articulated, and it brings happiness and fun to its community. Regardless of investment strategy, those aforementioned three factors are not to be overlooked or underestimated. Project longevity
Project longevity is key. Projects don’t need to be sustainable at first but, to survive for the long haul, sustainability is critical. When exploring a project, it is worth evaluating the plan for sustainability, or a revenue mechanism that could be leveraged at some point (e.g., Uniswap).
It is equally important to be aware of which projects demonstrate plans for sustainable revenue models or value capture. All (or most) projects aren’t sustainable early on, which is to be expected. At the time of writing, Uniswap is averaging over $3.5 million in fees per day, with none of this value accruing to token holders. This will (hopefully) change at some point, and if not, Uniswap governance token holders will be forced to reconsider their investment thesis. MakerDAO is one of the most profitable and sustainable projects in the entire space, raking in over $63 million in profits in the first half of 2021. While it’s difficult to find this degree of profitability elsewhere, it is certainly worth considering when evaluating investment opportunities. Assessing project longevity
When evaluating a project’s long-term potential, it’s critical to ask the question: Does this project really warrant a blockchain solution?
Similarly, can this open-source project be forked easily? Could you have a more efficient marketplace for whatever the project is solving without a token? Blockchain is a consensus mechanism, but it’s also a database. And, contrary to popular belief, it’s one of the most inefficient databases that we use at scale. To justify leveraging this massively inefficient solution, you better be solving a problem that is really painful. Financial problems, for example, merit this type of inefficient consensus mechanism because of significant problems like double-spends, lost transactions or the government printing fiat currency into perpetuity.
In all reality, there are relatively few use cases outside of finance for which blockchain technology is truly required. So, once a pain point is identified that is so egregious that it merits a blockchain solution, make sure that there is a coordination problem embedded within so that the consensus mechanism has a value-add impact. This is all to say that volatility in the crypto markets is here to stay, and objectively evaluating projects amid such volatility is no easy feat. Despite these challenges, understanding the utility, necessity and long-term viability of projects can help inform more effective investments to confidently hold in the long term.
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