Find stability amid the volatility of the crypto market

In one calendar year, the total market capitalization of cryptocurrencies more than quadrupled from $ 361 billion to more than $ 1 trillion in January and hit an all-time high of around $ 2.6 trillion in May. Just a few weeks later more than $ 800 million was eliminated from total market capitalization of cryptocurrencies, which corresponds to a decrease of more than 33%.

Volatility of this magnitude in the cryptocurrency markets is nothing new, especially for those that have stood the test of time in the market cycles of previous years. However, research shows that the global number of blockchain wallet users has increased by more than 25 million since March 2020, meaning this is only the first roller coaster ride for 25 million new entrants.

For newbies, volatility can be downright scary, but it doesn’t have to be. With positions well studied and a long-term perspective, volatility can serve as an opportunity to get exposure to assets with high upside potential at a low price.

Volatility creates vulnerability

Find stability amid the volatility of the crypto market
Find stability amid the volatility of the crypto market

When the market is generally green everyone is a genius Most have a false sense of invincibility and investment, much like Warren Buffet.

On the flip side, however, the bleeding markets not only make us doubt our position on Elon Musk, they also make us feel genuinely vulnerable. Bearish trends show the trader, the level of research and, above all, the conviction of the projects in which he invests. When the green candles are not there to obscure the judgment, the projects are stripped of their constituent elements and exposed for what they really are. This triggers a moment of introspection for the operator, which requires a reassessment of the general investment thesis. If the strength and competitive advantage of a project remain clear even after a sale, this volatility should be seen as a buying opportunity.

On the contrary, if the first propensity in the midst of a price correction is panic selling, then the belief may have been tied to price action rather than the strengths and innovations of a project.

Benefit of the project and the community

Always ask: Does the project make sense and who is supporting it? Few things are more revealing about a project than its suggested utility and the community that supports it.

An interesting example to highlight is everyone’s favorite: Dogecoin (DOGE). A quick walk back in time reminds us that the controversial coin, now trading at around 0.26 cents per dollar, was valued at $ 0.002 in September 2019, despite having no perceived value. The critical word here is “perceived”.

Although “cryptocurrency purists” fall into outbursts defending the honor of “real” cryptocurrencies with “real” utility, Dogecoin has done something far more innovative than most believe: it used the community as its utility. You read that right. Those who invested in the currency did so for three main reasons:

  • Take advantage of speculation.
  • A shared community experience.
  • To share the joke.

While the uses of Dogecoin are simple, it shouldn’t be confused with its uselessness. With the simplicity comes the ease of understanding which made DOGE a massive draw, an accomplishment that many cryptocurrency projects are still struggling to achieve, even with strong profits. There’s a low barrier to entry in terms of understanding and price, and it’s easier to undo a joke when Elon Musk and Mark Cuban are among those who find it amusing.

To do this, any cryptocurrency project should be able to easily communicate its value proposition, but most projects cannot. Hype investing is much more related to price promotions than to the quality or utility of the project.

The benefits of DOGE are easy to understand and articulate and bring joy and fun to your community. Regardless of the investment strategy, these three mentioned factors should not be overlooked or underestimated.

The longevity of the project

The longevity of the project is crucial. Projects do not have to be sustainable at the beginning, but sustainability is essential in order to survive in the long term. When exploring a project, it is a good idea to evaluate the sustainability plan or a revenue mechanism that can be used at some point (e.g. Uniswap).

It is just as important to know which projects have plans for sustainable revenue models or value creation. All (or most) projects are initially unsustainable, which is to be expected. At the time of this writing, Uniswap has an average of more than $ 3.5 million in commissions per day, none of which corresponds to the holders of the tokens. This will (hopefully) change at some point, and if not, Uniswap governance token holders will be forced to rethink their investment thesis. MakerDAO is one of the most profitable and sustainable projects in the entire industry, generating more than $ 63 million in profit in the first half of 2021 on investment opportunities.

Assess the longevity of the project

When assessing the long-term potential of a project, it is important to ask the following question: does this project warrant? For real a blockchain solution?

In the same way, Can this open source project be easily forked? Could you have a more efficient market for solving the project? without a sign? Blockchain is a consensus mechanism, but also a database. And contrary to popular belief, it is one of the most inefficient databases that we use on a large scale.

To justify using this massively inefficient solution, one problem is this For real painful. Financial problems, for example, deserve this type of inefficient consensus mechanism due to critical issues like double spending, lost transactions, or printing fiat currency forever.

In fact, there are relatively few use cases outside of finance that blockchain technology is really necessary for. So once such an egregious pain point has been identified that warrants a blockchain solution, make sure there is an embedded coordination problem so that the consensus mechanism has value.

All of this means that volatility in the cryptocurrency markets will persist and it is no easy task to objectively evaluate projects given this volatility. Despite these challenges, understanding the usefulness, necessity, and long-term viability of projects can help support more effective investments to instill long-term trust.

This article does not provide investment advice or recommendations. All investments and operations involve risk and readers should do their own research in making a decision.

The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.

Doug Leonard is the CEO of Hifi Finance, a fixed-term loan protocol developed on the Ethereum blockchain. Doug holds a bachelor’s degree in business information systems and a master’s degree in management information systems, both from Brigham Young University. Prior to being named CEO of HiFi Finance, Doug spent a year as a Senior Software Architect at Mainframe.

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