Bienvenidos mis ositos, tu siempre eres mis queridos! (Welcome back little bears you are always my dears!)
It brings me no pleasure to inform you that one of my distant cousins the big bad Kodiak bear has come out of hibernation and boy is he hungry.
If we’re lucky we’ll get a panda bear market of only 60 -75% drawdown. If we’re unlucky we might see a crypto winter that will take our favorite digital assets down 90% or more.
It doesn’t matter if you identify as an ape, bull, frog or hippopotamus. We all look like food to the bears.
The bull market is fearful of being tranquilized by the Federal Reserve and central banks around the world.
Consider the recent carnage in US stocks as measured by the S&P 500 ETF (SPY), notice how it is trying to stay above the lower Bollinger line.
Most of the stocks are considered “blue chip”. If blue chips are down this much, what do you think will happen to more speculative investments? So far this is considered a correction, what do you think will happen during a prolonged bear cycle?
We’re already getting a sneak peek with “innovation” and meme stocks. Look at what happened to most of the formerly hot SPAC stocks. Most will likely not survive.
But Panda! What does this have to do with my favorite crypto?!?
Most are works in progress even the number 2 digital asset Ethereum is STILL evolving. Maybe in 2022 we’ll see the merge but that’s not going to provide high gas fee relief. Scaling solutions like Polygon and Arbitrum have experienced congestion or outright outages.
Things are not much better on alternate layer one (L1)s. I’ve experienced fee spikes on chains like Avalanche and Fantom. The other week I was unable to transact on Solana.
The good news is that these chains will need to learn from their mistakes and improve for the future.
Many projects were spoiled and became complacent because of all the money getting thrown around by clueless newbs and venture capitalists.
In a bull run everyone is a genius and is your best friend but during bear times watch your back…
People are tired of broken promises and excuses. Now investors especially venture capitalists have started to ask the tough questions and reviewing their return on capital.
Wealthier individuals and larger investment funds have already started the “flight to “quality”.
Bitcoin and maybe Ethereum should lose less value as a crypto winter rages on. They are also decent collateral assets that you can borrow fiat or stablecoins against.
2022 and 2023 will be interesting years to see which projects can maintain their spots in the rest of the top 10.
In a bull market we saw a PvE (player versus environment) arena where digital asset investors were up against predatory VCs (venture capitalists).
In a bear market we will probably see more PvP (player vs player) action as venture capitalists switch to being more selective and withdrawing liquidity. The surviving digital asset investors will be fighting each other for scraps amidst hostile government actions such as monetary tightening and outright bans in some countries.
FUDsters from various government agencies, bureaucrats and lapdogs like guys named Nouriel have started drafting draconian legislation to stifle innovation in the digital asset space.
Have some funds in a regulated CEX (centralized exchange) in case you need to swap them for cash and for sending to traditional banks to meet expenses. This breaks my heart to type this but we have to deal with a potential ugly reality of DeFi crackdowns.
Now, we also have to careful with the money that you want to put to work in DeFi.
In a bear market we could see negative feedback loops or even death spirals for projects that have no value accrual built into their tokenomics. Low prices cause people to lose interest and low interest leads to lower prices.
We’ve seen this recently with Olympus and its’ forks. These tokens had a great run for a while and then people started to panic in the beginning of 2022.
Now it’s not clear what exactly caused the dump. I’ve seen a theory that a whale dumped OHM and that caused the initial selloff. But that’s just speculation. What is clear is that there was a lot of unwarranted FUD that accelerated the decline.
We can expect to see more of these type of hit pieces. It can come in the form of carefully crafted psyops (psychological operations) on crypto twitter or other social media.
If you’re willing to dig around enough you can usually trace these type of hit pieces from competing projects or someone with an axe to ground (like a disgruntled ex-developer).
Even in a bull market we saw a lot of project tribalism and maximalists. In a bear market get mentally prepared for even nastier tweet threads and toxic “discussions” in discord/telegram groups.
With regards to making money, don’t expect profits in fiat terms for 2022 or 2023. Your focus should be to outperform Bitcoin and survive. Look for beat up gems but don’t rush to buy. Look for “flatlined” prices but active gitbooks. Ideally you can accumulate quality assets on the cheap while everyone else has given up.
Your target should be to lose less than 25% in 2022 by cutting your losers quickly. This sounds like horrible advice but we’ll be able to bounce back from 25% declines. If your portfolio craters 90% it will feel like an eternity to get back to just BREAKEVEN.
Monitor the 200 day moving average for your favorite projects. A lot of technical and momentum traders use it even if you don’t personally thinks it make sense, other people do.
Why is this important? This is a hard line in the sand for tradfi investors and large institutional investors.
You should also shift your focus from capital appreciation to projects that return some type of cash flow like staking rewards.
People are getting tired of farm and dump tokenomics by lazy chains and projects.
Make a habit of looking at DeFillama to see where the action. If it can’t attract $1 billion or so in Total Value Locked I’m not likely to be interested
https://defillama.com/
So next time somebody tries to shill you on Vitalik’s cousins roomate’s rollup you can check for yourself if it’s worth your time to farm.
It’s also a good place to check the momentum of whale money trades. You may have noticed there are some narrative trades out there floated by venture capitalists and other “influencers”.
We currently have the Solunavax (Solana, Luna, Avalanche) narrative. There are still some yield opportunities left but they may dry up soon.
In recent weeks the FOAN (Fantom, ONE, ATOM, NEAR) narrative has been floating around on various media circles. I’m kicking the tires on some these ecosystems. If there is anything profitable I will be sure to share them with my dear readers.
NFT hasn’t reached their full potential besides profile pics in my opinion. I’m still on the lookout for either a marketplace play or something that will allow the general public to get in on the action.
For now, if you want to speculate on NFTs stick with expensive top tier projects that celebrities and other rich people are buying. They will be less likely to dump.
Since P2E (play to earn) games take up time I tend to stay away from them. BUT in a bear market a lot of projects may die off so the stronger surviving play to earn games may offer opportunities for some.
Make a rotating shopping list of tokens that you think will profitable. For example you should constantly rank them from 1 to 10. When you come across number 11 you should think hard on whether it deserves a spot on your portfolio. If it does you have to kick out an underperformer like number 9 or number 10.
What can you do to generate income for survival?
Options trading on dividend paying stocks can be used to supplement your DeFi income. For example selling cash secured puts or covered call writing are my go to strategies especially with elevated volatility. I am starting to see DeFi options trading projects develop.
I haven’t seen any that warrants a sizable commitment of my portfolio but I am keeping my eye on them.
Look to borrow against “blue chip” projects like Bitcon, Ethereum, etc then start averaging into projects that you have strong conviction and upside potential. The key takeaway when you borrow or use leverage is PLEASE exercise caution.
Apes always use the maximum leverage and then wonder why they keep getting rekt. Use it sparingly and watch your loan to value ratios to avoid liquidations!!!
Obviously none of this is formal financial or tax advice. You need to find qualified professionals in your jurisdiction.
Be sharp, stay hungry let’s get that money!
