Follow the lessons of the Web2 boom after the Dotcom crash.
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In the 90s, the dot-com bubble caused technology stocks and the Nasdaq index to increase fivefold. But the bubble burst in 2000, causing a crash that seemed to be the end of the great Internet dream.
But it was just the beginning
The dot-com crash and, more importantly, its aftermath, taught us essential lessons about the challenges and opportunities of a bear market. Companies like Dell, Cisco, Intel, Amazon.com, and eBay not only did they weather the storm, but they reaffirmed the belief that a promising technology is supported in the long term, eliminating unnecessary frills.
In many ways, the dot-com bubble is similar to the current landscape of the blockchain and cryptocurrency industry.
Investments in the cryptocurrency sector
There is no doubt that the cryptocurrency sector is going through a terrible phase. The market has lost $2T, about 67% of its value, from its all-time highs in November.
Although bear markets are considered a period of stagnation, widespread panic, and low investor confidence, they are also a great time to build and invest. “The time to buy is when there is blood in the streets,” said Nathan Rothschild, a 19th-century British financier and member of the Rothschild banking family.
Indeed. Smart money continues to flow into the cryptocurrency industry from private and institutional investors to fund the latest innovations and technical developments in the industry.
For example, Silicon Valley venture capital firm Andreessen Horowitz (a16z) announced a $4,5 billion fund for blockchain companies in May 2022. This isn’t the first time a16z has invested in a down market. Four years ago, during the “crypto winter” of 2018, the firm launched its first crypto fund worth $300 million. a16z partners are firm believers in the potential of blockchain technology and see down markets as opportune times to invest.
Latest technologies
Just as the dot-com bust created the perfect conditions for breakthrough innovation in Web2, the current bear market may foster a similar story in Web3. Developers can focus on building the latest technologies, as in the case of Bitcode Premium, rather than getting distracted by overpriced activities.
Andreessen Horowitz isn’t the only company investing in a bear market. Binance Labs, the venture capital arm of one of the world’s largest cryptocurrency exchanges, has raised $500 million to invest in Web3 companies. The company plans to use the bear market to find dedicated developers willing to build the next big technology in Web3. Binance Labs will distribute its capital across pre-seed, early-stage, and equity, investing in project tokens and stocks.
Institutional investment is encouraging retail investors to fund crypto startups, with total investments of $10 billion in the first quarter.
Investors can see higher profits when market metrics are worse than usual. Billionaire investing legend Warren Buffett embraces contrarian investing. “Be fearful when others are greedy, and greedy when others are fearful,” he said.
A significant portion of investors have caught on to this investment ethic and are using different strategies to buy the dip. Some of them are using dollar-cost averaging (DCA) to spread their funds across multiple projects over a period of time. DCA is ideal for investors with limited cash and low risk appetite. Other investors are using the Relative Strength Index (RSI) indicator and RSI divergence strategy to invest in the right project tokens.
The Path to Smart Investing
Just as the dot-com crash did not halt the forward march of Internet technology, the current negative market It won't stop Web3.
Blockchain and cryptocurrencies will survive this cycle, emerging stronger than ever. The bear market calls for cautious optimism and offers an opportunity to devote the energy and resources needed to build sustainable, market-ready, and truly useful solutions.
By shifting focus to the development of fundamental technologies, the ongoing crisis will perhaps make the cryptocurrency ecosystem more resilient in the long run. There may also be a significant shift away from shady money-making projects toward high-quality innovations that solve real problems for users. However, investors need to be wise in finding the right projects, now more than ever.
It is necessary to identify market segments that have the potential to grow in the coming years. One such segment is decentralized finance (DeFi), with its lending-borrowing protocols, yield farming, derivatives trading, and other banking protocols. Other segments include NFT-based gaming projects, payment platforms, and remittance protocols.
In short, investors need to do their research and conduct due diligence before investing in a project. For example, to understand the revenue generation mechanism, they need to analyze the project’s technology through whitepapers and GitHub repositories. They also need to research the developer team and monitor the project closely through social media channels. In this way, despite the bear market, smart investors can significantly contribute to promising and sustainable Web3 projects in the long run.
Article published on 25 August 2022 - 11:32
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