Metrics to Monitor a Crypto Bear Market
The Crypto Space is a roller coaster ride that is filled with uncertainty, as it can provide you with the number of gains and losses you have never seen before. It has only begun recovery from the pandemic in 2021 but late issues in 2022 have managed to send the whole cryptocurrency market to a decline in 2022. With the whole economy also in a state of recovery, what are some of the causes that are contributing to the Crypto Bear Market? And some metrics to analyze before you decide to “Buy the Dip”.
What is causing the “Bear Market”?
When we think about the Crypto Space in November 2021, expectations were high that the year will close in a historical fashion with the increase in adoption. The Crypto Space soars to an all time high of $3 Trillion overtaking Gold’s Market Cap, while Bitcoin in itself reaches $68,000 as possibly the best performing asset over a 10-year period. This also is followed with an explosion in NFT and GameFI space, there is hope that this trend will continue to 2022.
This is also even more remarkable considering that in 2021 our whole economy was on a recovery stage and instead the crypto space was flying on a new high. Number started to emerge as analysts expected Bitcoin to overtake Gold’s Market Cap and close in $100k valuation but unfortunately that’s not what happened. Just as Bitcoin was reaching its all time high of $68,000, the crypto space started to lose steam and what follows is a steep decline that continues until today.
Bitcoin currently stands at $21,000 while Ethereum is close to the $1,500 mark, this may sound like a little bit of recovery from its all-time lows but both still present close to a 50% loss year on year. Although the crypto space was quick to point out the word “Crypto Winter” as the cause of this crash but there are reasons to believe that this crash could be different from its predecessors.
One of the main reasons for this lies in the Government actions to combat covid which sees the US Money Supply spike up to $21.6 Trillion in 2022 which is a 40% increase from its 2020 numbers. The increase of $9.1 Trillion in just 2 years is enough to cause some assets to enter a bubble phase where they get over value to a stretch until the bubble bursts and corrections happen. This is also what happened with the dot com bubble in 2001, the housing market in 2008 and right now the crypto space in 2022.
The repercussion of all this is when the tapering was held out by the FED, most of this additional money that usually flows to the crypto market will dry down due to the increase in Interest Rates. This not only causes inflation in the economy but also discourages people from risk-prone assets such as cryptocurrency, as people will prioritize their basic expenses amid the uncertainty. This uncertainty was further fueled by the War going on in the world that is also contributing to the hike in basic expenses.
Although the uncertainty in the economy is one ofthe factors behind the decline of cryptocurrency, some of the causes also came from within the crypto space itself. The problem lies in the main perception of stakeholders within the crypto space which always aim at replicating the Bitcoin success story and that is “Make gains like you have never seen before in a short period of time.” Of course, most investors don’t think that in order to achieve there is risk involved in it and the higher the profit will have a higher risk.
This is true when we look at how the cryptocurrency space is filled with debt with the introduction of leverage and it only takes a small correction for the dominoes to topple. The recent case of Anchor Protocol and the fall of UST, is a devastating blow towards the crypto space who were only beginning its resurgence in April 2022 where not only $60 Billion disappeared in a matter of days but also hurt investors confidence in the space.
The Problem with the UST and Anchor Protocol is that the Terra ecosystem is very well connected within the crypto space and its fall triggers a massive selling pressure within the market. This also is part of the cause of what happened with Celcius Network who, like Anchor protocol, offered a ridiculous yield of 18% in order to get users onboard into the network. The problem with these high yields is that Celcius will have to use the funds from the user to make highly risky investments in order to cover the cost of the interest rates.
All of this concept works well in a Bull Market but when the crypto space is in a downtrend, the market is just one mistake away from a crash. The hope is that when the economy starts to recover, the pressure might be lifted off slightly and consumer confidence could recover. That is why for all of you looking to “Buy the Dip”, investing in a crypto is a high yielding activity but it also comes with a risk and here are some metrics to help you in doing your research.
Metrics to Consider:
- Does the Coin have any use case / utility?
Every Coin/ Token is created with a general view in mind that it will be used as a medium of exchange as that will form the major part of the demand for their Coin/ Token in the long run. This Utility or Demand should also in a way exceed the amount of supply that is created.
Of course, the Crypto Space is no short of flashy marketing and gimmick but the question you have to ask as an investor is “Why does this Project Exist?” If the answer doesn’t make sense to you, then there is a high chance that the Coin/ Token will find it hard to be universally adopted.
2. Does the Coin have a competitive advantage?
In a space where there are more than 20,000 competitions, it obviously is important to not only be able to solve a problem but also how the project stands out from its competitors? Does the project have something different or innovation that was not done before?
This sometimes can be difficult as almost every cryptocurrency comes with different features but you can find a similar comparison to an existing coin / token and this will help you analyze the success of the project in the future.
3. Is the project able to generate revenue in the long term?
The saying goes that “Every Investment is done with a view to make more in return” and this should also apply to when analyzing a crypto project. Does the crypto project have a sustainable revenue model for the long term?
As operating any project in a bear market requires time and money, this will help you to analyze if the crypto project has the ability to survive and thrive from the crash. If the answer is yes, that means you might just strike gold with an undervalued company but if it’s a no, it’s time to reconsider your options.
4. Is there risk management structure involved?
In every business and investments there is always risk involved and the problem is to never avoid the problem in any way but how does the crypto project manage those risks in order to get the returns?
As mentioned before Crypto at its current stage is a “high return, high risk” place so a good crypto project should not only know how to maximize the returns but also minimize the risks involved for the long term
5. Are the roadmaps clear and achievable?
Roadmaps are a great tool to analyze especially during a bear market where all the sentiments are negative, as this helps you focus your mind to the long term.
Obviously, this roadmap should be clear, exciting and more importantly achievable for the crypto project.
We from Nagaya Technologies Pte. Ltd believed that the crypto space as a whole will bounce back from this crash and hoped that this could serve as a lesson for future developments. We understand in the development of Nagaya how important the value of a backup such as Gold is in order to mitigate the volatility happening to a crypto asset. This led to the creation of the world’s first hybrid crypto asset Nagaya that not only supported Gold Backup to offer the much-needed stability but also Subsidiary Project to provide its long term growth. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya,io
Or you can talk to us at t.me/nagayaofficial