Cryptocurrency bear markets\u00a0destroy portfolio value<\/a> and they have a dangerous tendency to drag on for longer than anyone expects. Fortunately, one of the silver linings of market-wide pullbacks is that it gives investors time to re-focus and spend time researching projects that could thrive when the trend turns bullish again.<\/p>\n Here\u2019s five areas to focus on when deciding whether to invest in a crypto project during a bear market.<\/p>\n The cryptocurrency sector has no shortage of flashy promises and gimmicky protocols, but when it comes down to it there are only a handful of projects that have delivered a product that have demand and utility.<\/p>\n When it comes down to determining if a token should continue to be held, one of the main questions to ask is \u201cWhy does this project exist?\u201d <\/p>\n If there is not a simple answer to that question or the solutions offered by the protocol don\u2019t really solve a pressing problem, there is a good chance it won\u2019t gain the adoption it needs long term to survive. <\/p>\n In the cases where a viable use case is present, it’s important to consider how the protocol compares against other projects that offer solutions to the same problem. <\/p>\n Does it offer a better or simpler solution than its competitors, or is it more of a redundant protocol that doesn\u2019t really bring anything new to the table? <\/p>\n A good example of unnecessary redundancy is the oracle sector of the market, which has seen a handful of protocols launched over the past three years. Despite the growing number of options, the oldest and most widely integrated oracle solution is Chainlink (LINK<\/a>) and it remains the strongest competitor in the field. <\/p>\n \u201cIf you build it, they will come,\u201d is a cliche expression tossed around in tech circles, but it doesn\u2019t always translate into real-world adoption in the cryptocurrency sector. <\/p>\n Operating a blockchain protocol takes time and money, meaning that only protocols with revenue or sufficient funding will be able to survive a bear market. <\/p>\n Identifying whether a project is profitable and where the revenue comes from can help guide investors who are interested in buying decentralized finance (DeFi) tokens.<\/p>\n If a project shows limited activity and revenue, it may be a good time to start evaluating whether it’s undervalued or a investment that should be avoided.<\/p>\n Every startup is meant to have a war chest, treasury or runway and prior to investing, it’s important to identify whether or not the project has sufficient funds to survive downtrends, especially if providing yield on locked assets is the primary incentive for attracting liquidity.<\/p>\n As mentioned earlier, running a blockchain protocol isn\u2019t cheap, and the majority of the protocols out there might not be liquid enough to survive a lengthy bear market.<\/p>\n Every successful NFT project should bring in a crypto financial manager\/treasurer to properly diversify\/hedge their war chest, not just keep everything in ETH. <\/p>\n A project needs to know how to take profit too.<\/p>\n \u2014 $trawberry Sith (@StrawberrySith) May 10, 2022<\/a><\/p><\/blockquote>\n Ideally, a DeFi-style project should have a large treasury containing a variety of assets like Bitcoin (BTC<\/a>), Ether (ETH<\/a>) and more reliable stablecoins like USD Coin (USDC<\/a>) and Tether (USDT<\/a>). <\/p>\n Having a well-funded and diversified treasury that can be pulled from during tough times is crucial and as $trawberry Sith suggests, projects need to learn when to take profit, and not leave a majority of the protocol treasury in Ether or on the platform’s native token.<\/p>\nIs there a use case?<\/h2>\n
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<\/figure>\nIdentify a competitive advantage<\/h2>\n
Does the protocol generate revenue, and how?<\/h2>\n
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Are there cash reserves?<\/h2>\n
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