Footprint | How to Find Opportunities in a Bear Market?

There is no doubt that the bear market in the cryptocurrency market has returned. During the market slump, finding opportunities to overcome difficulties is the answer that every resident of the cryptocurrency community is seeking.

• June 2022, Simon
• Data Source: Footprint Analytics – Investing in Bear Market Dashboard

There is no doubt that the bear market in cryptocurrencies has returned. Bitcoin has dropped 70% from its all-time high, Ethereum has dropped 80%. Even Luna, once the third-largest public chain, fell during this period, and various altcoins and GameFi Tokens have almost lost all their value.

In a bull market, as long as you follow beta investments, you can passively earn income by following the trend. But in a bear market, we need to use alpha investments to find investment opportunities.

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Finding Opportunities in DeFi during a Bear Market

• Discovering Market Trends in the Macro Market

DeFi has essentially replicated all traditional financial patterns, from lending to financial derivatives. The main difference between DeFi and traditional financial projects lies in the use of smart contracts, making information more transparent on-chain, and creating its own Token as an incentive.

However, lacking strong regulation like traditional finance, Token prices fluctuate significantly, and the actions of a single whale can have a major impact. Moreover, DeFi has always lacked integration with the real world, coupled with the high entry barriers into blockchain, causing it to transition from a period of rapid development to a bottleneck stage.

DeFi users have gone from the initial amazement of entering the crypto sphere to now understanding its routines. The issuance of diluted Tokens has gradually decreased, and the current DeFi is finding it difficult to match the returns of a year ago.

Using Footprint Analytics data categorized by type, it can be seen that the landscape of DEX and Lending, once hailed as the two cornerstones of DeFi, has quietly changed. The TVL of DEX in major public chains is no longer at the top, with market share dropping to 27%. Lending, which was previously in second place, has gradually been surpassed, with its market share now only 8%, even falling behind Yield, while Bridge has captured 18% of the market.

• Dollar-Cost Averaging Strategy

Based on an initial assessment of the macro situation, if unable to determine when a Token hits bottom, one can consider using a dollar-cost averaging strategy. By evenly allocating funds and investing regularly, one may not achieve excess profits, but is likely to profit through the power of dollar-cost averaging.

Users should note that not all Tokens are suitable for this method; meme projects will only deplete your capital faster. Dollar-cost averaging projects require long-term investment, so it is more suitable to choose mainstream Tokens that are more widely recognized.

• Stablecoin Investment

Due to the high volatility of cryptocurrencies causing FOMO emotions that make it difficult to make correct decisions, especially in a bear market, using stablecoins is a relatively low-risk investment option. Whether on a Lending platform or a DEX platform, there are plenty of opportunities to invest in stablecoins, and forming LPs with stablecoins can also help avoid gratuitous losses. While stablecoins have more use cases and lower volatility, remember that they also carry risks.

After the UST plummeted, concerns arose about the security of algorithmic stablecoins, as there has yet to be a case considered very secure solely based on algorithms. The lack of transparency in centralized stablecoins also poses security issues, and the liquidation risk of over-collateralized stablecoins also needs attention.

According to Footprint Analytics data, the recent crash also led to a cliff-like decline in the TVL of the largest stablecoin DEX platform, Curve. Therefore, it is important not to choose blindly but to select a stablecoin whose model you agree with.

Finding Opportunities in GameFi during a Bear Market

• Discovering Market Trends in the Macro Market

According to data from Footprint Analytics, the unique user count of GameFi peaked at the end of 2021, reached its highest point in January, and then began a downward trend. A more pronounced decline occurred at the end of May, with new users gradually decreasing. On June 8, new users were 65,000, and the unique user count was 606,000, only 30% of the peak.

GameFi 1.0 grew rapidly, but players experienced one common feeling after playing various games—boredom. The current games have poor playability, with most projects using Tokens solely as a reward mechanism to attract a large number of mining and selling players, with project cycles typically lasting only a few months.

Selecting an investment-worthy project from the many GameFi projects is not easy and could easily turn into becoming a "leek" for old users to recoup their investments. During this time, evaluating project popularity, new player growth, old user retention, and Token circulation is crucial. Entering early is more likely to recoup, and attention should also be paid to the dynamics of the project team to seize opportunities on the eve of price fluctuations.

For example, the StarSharks project has attracted numerous users in its early stages, including gold farmers, leading to a rapid increase in project data. However, the influx of users resulted in an excessive minting of project Tokens, leading to price deflation. When the project team realized the problem and resolved the leasing business, user data also saw a sharp decline, no longer attracting new users, and the Token price entered a death spiral.

Looking at the retention rate, it is also evident in StarSharks, with only 1.7% of users who entered in April still remaining. The early users have all been lost, with only 6.1% retention from those who entered in December last year, likely because these users owned NFTs at a lower cost and have essentially recouped their investments, with subsequent returns being pure profit. Therefore, choosing the right entry time is crucial.

In addition to monitoring the macro situation of the entire market, macro control by the project team is also crucial. While this may contradict decentralization, effective control in the early stages can prevent Token prices from skyrocketing or plummeting, allowing for longer-term project development. Therefore, users should closely monitor the dynamics of the project team, such as their statements in the community or organized activities, to understand the project's future direction and make correct decisions before any changes occur.

• 3A Game Direction

When GameFi hits a bottleneck, some traditional game developers begin to enter the world of blockchain. VCs have also started to lay out in the 3A game sector, with the most representative Illuvium gaining significant attention just from a teaser release, with its price peaking at $1800.

Although 3A games have high development costs and long cycles, their exquisite graphics and rich gameplay will attract more players who value the intrinsic value of games. Whether they can break the curse of the death spiral remains to be seen in the performance of games launching this year.

Investments during a bear market should not rely solely on speculation but should seek out valuable games. While the development capabilities of traditional game developers are unquestionable, whether they can adapt to blockchain and create games suitable for the crypto community also depends on their economic models.

• X-to-Earn Direction

StepN pushed the X-to-Earn model into the spotlight, once considered a way out of the death spiral. However, with a series of negative news, it has been observed since June that the withdrawal users of StepN on the BSC chain have exceeded the deposited users, leading to a continuous decline in Token price.

Regardless of whether StepN's efforts will ultimately succeed, the X-to-Earn model will continue to be an area of focus in the short term. Observing more and choosing carefully is key, analyzing the project's value advantages and entering at the project's early low point to minimize the risk of getting stuck.

Conclusion

The first choice for profit in traditional finance is to exploit information asymmetry. Blockchain data is open and transparent, and integrating and analyzing data is an essential step to reduce information asymmetry. People may lie, but data does not.

After grasping the macro trends, participating more in the community activities of promising projects, receiving more information, and making quick judgments are ways to better survive in this bear market.

This article is contributed by the Footprint Analytics community.

The Footprint Community is a global collaborative data community where members use visualized data to create impactful insights. In the Footprint community, you can get help, build connections, and engage in blockchain-related learning and research on Web 3, the metaverse, GameFi, and DeFi. Many active, diverse, and highly engaged members mutually inspire and support each other, creating a global user group that contributes data, shares insights, and drives community development.

The above content is for personal perspectives only, for reference and discussion purposes, and does not constitute investment advice. If there are obvious misunderstandings or data errors, feedback is welcome.

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