Looking into a store of value, stablecoins and crypto products that offer reduced risk
During a crypto bear market, the value of assets drops, but there are ways to survive this downturn. Here at DappRadar, we often talk about opportunities, and when the market is euphoric, it’s easy to get carried away. But during a bear market, we need a bit more security and less risk. Now that’s exactly what this article is all about.
Surviving a bear market is not about removing all your money from the crypto space. Instead, it’s more about finding opportunities that involve less risk, and perhaps also less yield. While a certain crypto token price can drop 90%, maybe an NFT collection only drops 30% in USD value. Or perhaps the value even increases when measured in ETH, SOL, or BNB for example. It’s safe to say that there are plenty of opportunities for those that want to survive the crypto bear market, and that’s why we have made this list of five tips.
Tips on how to survive the crypto bear market
- Swap to stablecoins – these crypto dollars can still earn you 6% interest per year
- Sell tokens from doubtful projects – reduce the risk in your portfolio by analyzing each of your investments
- Sell NFTs that do not innovate – Ultimately, NFTs are community projects, and you could potentially sell them when there’s no roadmap or innovation.
- Blue-chip NFTs can provide a hedge – Some NFT collections can survive the test of time and therefore retain their value even through a bear market.
- Reduce risky liquidity positions – Reduce or close your positions in liquidity pools of smaller, less influential cryptocurrencies.
1. Swap to a stablecoin instead of to your bank account
A stablecoin is a type of cryptocurrency that attempts to offer price stability and is backed by a reserve asset. In this case, the most popular asset is the US dollar, and the euro and British pound back other examples. Traders use these for stability, to move in and out of positions. Another benefit of holding stablecoins is the plethora of staking yields available that can often be as high as 6%. No matter what the markets, you are retaining the dollar value and increasing it at a steady rate. Another way would be to add liquidity to a two-sided stablecoin pool to earn a yield on platforms like Curve.
2. Sell tokens from projects with doubtful fundamentals
A bear market can provide an excellent opportunity to go through your portfolio of cryptocurrencies and NFTs with a fine-tooth comb. Of course, everyone’s a little guilty of apeing in, so now at a time when those assets are under severe stress, it’s important to look harder and decide if this asset will appreciate back to a point where you can recover funds. Or better still, recycle back to its all-time high and beyond.
Regarding fundamentals, the metrics to look at are market capitalization, user base, and popularity. The user base can be assessed by looking at the number of unique active wallets interacting with a dapp on a specific network and by looking at the trading volume of a certain token. Popularity can be assessed using social signals and platforms like Santiment, but moreover, a high level of market cap implies popularity to some degree.
3. Sell NFTs that are unlikely to innovate
When it comes to NFTs, it’s a different proposition, mainly due to the developing nature of the space and the lack of tangible metrics available to use as a guide. Firstly, the floor price. If it’s lower than it was but still way above the minting price, the NFT is still in profit. However, it could have reached its top based on its utility and demand. Therefore, looking at the trading volume of the NFT collection is a way to see how much demand there is for the item. Perhaps even more critical is the roadmap. What’s still in store, and have the project leaders lived up to their promises? Repeatedly failing to deliver is, of course, a red flag and could be a selling signal.
Another option for those with vast NFT collections perhaps made up of many lower value items is to clear out entirely and funnel the funds into a bluechip NFT collection such as the Bored Ape Yacht Club, MeeBits, or CryptoPunks, for example, if possible.
4. Blue-chip NFTs can provide a hedge
A blue-chip NFT is typically well-known, established, stable, and considered an excellent long-term investment. Blue-chip NFTs are also thought to be a more secure investment than most NFTs and have a proven track record of growth and value. While there are not hundreds of blue-chip NFTs, there are clear leaders. In the NFT market, CryptoPunks is considered a blue-chip collection, while Autoglyphs do well. Other potential NFT collections with strong fundamentals include Bored Ape Yacht Club, CloneX, and some of the collections from the Art Blocks platform, including Fidenza and Chromie Squiggles.
Also worth considering is that floor prices of NFTs are dynamic as they are traded in cryptocurrencies such as ETH. Just because Ethereum lost 20% due to decreasing demand and sell pressure, the same may not ring true for an NFT with high demand, and the floor price may increase based on the falling value of ETH.
Blue-chip NFTs are often too expensive for the majority of NFT collectors. The floor price for CryptoPunks is around 53 ETH, and for Bored Apes it’s 105 ETH. This is where fractionalized NFTs come in. People can buy a portion of an NFT at a far lower price than the entire value and enjoy the ups and downs with less risk.
5. Reduce yield farming activities to low-risk assets
You can convert all or a part of your assets to USDC or USDT, but what do you do with your tokens locked in liquidity pools? Especially the ones that involve staking of LP tokens. In those cases, it could be a good opportunity to assess the value of those holdings simply. How much do you have in these pools, and what do you want to secure? First, you must evaluate whether the tokens in your liquidity pools have strong fundamentals that can survive a bear market. For example, you might want to reduce risk.
- Very low risk – liquidity pairs with stablecoins, for example, USDC/USDT
- Low risk – stablecoin against ETH and BTC (USDT/BTC or USDC/ETH). Yes, value can drop by depending on the yield you earn from staking, these could remain strong positions.
- Medium risk – ETH or BTC against a smaller token, for example, ETH/SAND or ETH/REVV. Smaller projects will see a strong value decrease.
- High risk – Liquidity pairs with a token pair of smaller projects, for example, REVV/SAND
It all depends on the yield you can catch on those liquidity pairs. But to reduce financial loss, you might want to consider closing some liquidity positions. Of course, as long as you’re bullish on a project in the long term, there’s less harm in keeping your positions open.
As a bonus tip, when you’ve claimed your interest or yield, move it to a more stable asset. This way you can secure the value of your yield farming activities better. This requires user activity but reduces potential losses. Of course, it also reduces the potential upside when the market bounces back.
