The crypto markets’ volatility is here to stay. As a result, it is critical to comprehend the value, need, and long-term profitability of initiatives.
The overall crypto market value more than doubled in a calendar year, from $361 billion in January to more than $1 trillion in May, hitting an all-time high of roughly $2.6 trillion. Only a few weeks later, the overall crypto market value had plummeted by more than $800 million, a drop of more than 33%.
Volatility of this scale in the cryptocurrency markets is nothing new, especially for those who have been through previous market cycles. According to data, the worldwide number of blockchain wallet users has climbed by more than 25 million since March 2020, implying that this is only the beginning for 25 million new recruits.
Volatility might be intimidating for novices, but it doesn’t have to be. Volatility may alternatively be used to get exposure to assets with strong upside potential at a reduced price if you have well-researched holdings and a long-term vision.
Vulnerability fosters volatility
Everyone is a genius when the market is green across the board, lulling most into a false feeling of invincibility and Warren Buffet-like investment prowess.
Bleeding markets, on the other hand, not only make us wonder where we stand in comparison to Elon Musk, but they also make us feel vulnerable. Downtrends reveal the trader, the extent of their research, and, most significantly, their belief in the projects they have invested in.
Projects are broken down to their component elements and shown for what they actually are when green candles aren’t there to cloud judgment. This prompts the trader to reflect, necessitating a reevaluation of the whole investing concept. This volatility could be considered as a purchasing opportunity if a project’s strength and competitive edge remain obvious during a sell-off.
If, on the other hand, panic-selling is the initial reaction after a price decline, then possibly conviction was based on price action rather than a project’s strengths and innovations.
Community benefit and project utility
Always ask yourself, “Is this project beneficial, and who is behind it?” Few things reveal more about a project than its intended utility and the community that supports it.
Dogecoin, everyone’s favorite, is an interesting example to highlight (DOGE). A simple trip down memory lane reveals that, despite having no apparent value, the contentious currency, which today trades at around $0.26 cents, was worth $0.002 in September 2019. The term “perceived” is crucial here.
Dogecoin achieved something considerably more inventive than most give it credit for, despite “crypto purists” preserving the dignity of “genuine” coins with “real” use. It made use of the community as a resource. Yes, you read that correctly. Those who have put money into the currency have done so for three reasons:
- To make money via speculating.
- It’s a communal experience.
- To be a part of the joke.
Don’t mistake the simplicity of Dogecoin’s usefulness for its lack of utility. With simplicity comes ease of understanding, which has helped DOGE gain tremendous general appeal – something that many cryptocurrency projects, even those with significant usefulness, still fail to achieve. In terms of knowledge and cost, there’s a low barrier to entry, and it’s simpler to invest in a joke when Elon Musk and Mark Cuban are among those who think it’s hilarious.
To that end, every cryptocurrency project should be able to clearly convey its value proposition, yet the majority of them are unable to do so. Investing in hype is far more dependent on price action than on the quality or utility of the project.
DOGE’s usefulness is simple to comprehend and describe, and it offers joy and happiness to its society. Those three criteria should not be neglected or undervalued, regardless of investing style.
Longevity of the project
The ability of a project to last is crucial. Projects do not have to be sustainable at initially, but they must be if they are to be successful in the long run. When considering a project, it’s important to consider the strategy for long-term viability, as well as an income stream that might be used at some time (e.g., Uniswap).
It’s also crucial to know which initiatives have plans in place for long-term revenue models or value capture. Early on, all (or most) ventures are unsustainable, which is to be expected. Uniswap is averaging over $3.5 million in fees each day at the time of writing, with none of this value going to token holders. This will (hopefully) change in the future, and Uniswap governance token holders will be compelled to reevaluate their investment thesis if it does not. MakerDAO is one of the most successful and long-term ventures in the industry, with earnings of more than $63 million in the first half of 2021. While this kind of profitability is rare to come by elsewhere, it is certainly something to consider when evaluating investment options.
Determining the project’s long-term viability
When assessing a project’s long-term viability, it’s crucial to ask: Does this project actually require a blockchain solution?
Is it possible to fork this open-source project easily? Is it possible to establish a more efficient marketplace for whatever problem the project is trying to solve without using a token? Blockchain is a database as well as a consensus mechanism. It’s also one of the most inefficient databases we utilize at scale, contrary to common assumption.
You had better be tackling an extremely unpleasant problem to justify using this hugely inefficient method. Because of important issues like as double-spends, missing transactions, or the government issuing fiat currency in perpetuity, financial difficulties, for example, justify this sort of inefficient consensus process.
In truth, outside of banking, there are just a handful application cases where blockchain technology is genuinely essential. So, whenever a problem is found that is severe enough to warrant a blockchain solution, make sure there is a coordination issue present so that the consensus method may provide value.
All of this is to indicate that crypto market volatility is here to stay, and honestly appraising projects in the face of such volatility is no simple task. Despite these obstacles, knowing the utility, need, and long-term viability of projects may assist inform more successful investments that can be held with confidence throughout time.
There is no investment advice or recommendation in this article. Every investing and trading decision has risk, and readers should do their own due diligence before making a decision.