During the calendar year, the total market value of cryptocurrency more than quadrupled from $ 361 billion to over $ 1 trillion in January, reaching a record high of around $ 2.6 trillion in May. A few weeks later, more than $ 800 million was knocked out of the total market value of cryptocurrencies, representing a fall of more than 33%.
This volatility in the cryptocurrency markets is nothing new, especially for those who have been tested by market cycles in recent years. However, research shows that the global number of blockchain wallet users has increased by more than 25 million since March 2020, which means that this is only the first roller coaster with 25 million new members.
For beginners, transience can be downright intimidating, but it does not have to. With well-thought-out positions and a long-term perspective, volatility can serve as an opportunity to access assets with high bullish potential at a discount.
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Instability breeds weakness
When the market is green everywhere, all become geniuses, and most of them encounter a false sense of impunity and investment sense like Warren Buffett.
On the other hand, the impoverishment of markets not only makes us question where we are in relation to Elon Musk, but also makes us feel really vulnerable. Downtrends reveal the trader, the level of research and, most importantly, the confidence in the projects invested in them. When there are no green candles hiding the judgment, projects are stripped of their constituents and exhibited for what they are. This starts a moment of speculation for the trader, and requires a new assessment of the overall investment task. If the strength and competitive advantage of a project is still evident after the sale, this volatility should be seen as a buying opportunity.
Conversely, if the first trend based on a price correction is panic sales, it may be that belief has more to do with price action than with strengths and innovations in the project.
Benefits of the project and the community
Always ask: is the project useful and who supports it? There are a few things that tell us more about the project than its value proposition and the community behind it.
An interesting example to highlight is the general favorite: Dogecoin (DOGE). A quick walk down the memory lane reminds us that the controversial coin, which is now trading at around $ 0.26, was worth $ 0.002 in September 2019, despite the fact that it had no intended value. The key word here is tangible.
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While “cryptocurrency enthusiasts” are furious at defending the honor of “real” cryptocurrencies with “real” utility, Dogecoin has done something more innovative than intended: It exploited the community to its advantage. You read that right. Those who invested in currency did so for three main reasons:
To make money on speculation.
General social experience.
To share a joke.
Although Dogecoin’s advantage is simple, do not confuse it with useless. With simplicity comes the simple understanding that is so popular with DOGE – a feat that many cryptocurrency projects are still trying to achieve even with reliable utility. The entry barrier is low in terms of understanding and price, and it’s easier to invest in a joke when Elon Musk and Mark Cuban are among those who find it funny.
For this purpose, each crypto project should only be able to communicate its value proposition, but most projects cannot. Noise investments have more to do with price changes than with the quality or usefulness of the project.
The benefits of DOGE are easy to understand and easy to express, and they bring happiness and enjoyment to their community. Regardless of the investment strategy, these three factors mentioned above should not be overlooked or underestimated.
The long life of the project is the key to success. Projects do not have to be sustainable in the beginning, but sustainability is crucial for long-term survival. When studying a project, it is worth evaluating a sustainable development plan or revenue-generating mechanism that can be used at some point (for example, Uniswap).
It is equally important to be aware of projects that show plans for sustainable income or value acquisition models. All (or most) projects are not sustainable early on, which is to be expected. At the time of writing, Uniswap is on average over $ 3.5 million per day, and none of this is credited to token holders.