Table of Contents:
- Which Cryptos Will Survive a Bear Market?
- Contagion in the Crypto Market
- Why Choose Cryptos That Will Survive the Bear Market?
- How to Pick a Balanced Crypto Portfolio
- Which Cryptos Should You Pick?
- How to Identify the Best Cryptos
- How to Conduct Due Diligence on Cryptos
- Crypto White Paper Analysis
- The Project and the Competing Blockchains
- The Team and the Community
- Transaction Value and Fees
Important: The information herein does not constitute investment advice. Remember that the value of your investments and any income from them can fall as well as rise, and you could get back less than you invest or completely lose your funds. If you are unsure about the suitability of investments please seek advice.
Just like the economy, the crypto market is cyclical and it’s no secret that it is prone to severe, unexpected and often unprecedented volatility. For traders, this volatility is welcomed, even sought after. For those HODLing cryptos, this is a headache that most wish they could avoid as which cryptos will survive a bear market becomes harder to tell.
The bad news is that there’s no avoiding the volatility in the crypto market, but the good news is that you can structure your crypto portfolio by aiming to select cryptos that can survive the bear market.
This doesn’t mean these cryptoassets won’t drop during a bear market; it means that they will, on average, recover when the trend turns bullish.
In this article, we will go through how to analyze and pick the best cryptos for your portfolio.
Contagion in the Crypto Market
In a market driven almost entirely by sentiment, no crypto is immune to contagion and most of it is tied to BTC. Where bitcoin goes, others tend to follow. In the crypto market, bitcoin is king, and, in most cases, its fluctuation drags the entire market down. This correlation isn’t of 100%.
At some point, some cryptos will recover quicker than others and go on to newer highs, while some may crash and never recover. How hard a cryptoasset crashes often comes down to its fundamentals.
Why Choose Cryptos That Will Survive the Bear Market?
Well, the answer here is pretty straightforward – capital preservation. The primary goal of any investment is to make profits. This makes selecting most resilient cryptos extremely important. It’s even more crucial to select cryptocurrencies that can survive bear market conditions and preserve their value. Let’s see how you can accomplish this.
Cryptoasset returns have, over the last decade, been well above those of equities markets, with Bitcoin greatly outperforming both gold and the S&P 500 over the past 10 years. Risk can be reduced with a balanced portfolio, but resilience is crucial in the cryptocurrency space as every market downturn takes its toll.
Nearly 1,700 cryptocurrencies have completely lost their value over the last decade, while some have simply lost most of theirs over time. Looking at the top cryptocurrencies and their price performance may make it look like investing in cryptoassets is easy, but in reality a lot of research is required.
How to Pick a Balanced Crypto Portfolio
The first step to surviving a bear market is, according to most experts, choosing a balanced portfolio. As the saying goes, never put all of your eggs in one basket. This is where diversification comes in.
By diversifying one’s investments, you effectively guarantee that any negative volatility experienced in one crypto won’t significantly dampen your returns from the market.
Portfolios invested in various crypto asset classes mitigate strategic risk more successfully. Various cryptocurrencies underpin different crypto projects. This means that you can diversify your crypto portfolio based on the crypto project or the type of cryptocurrency.
Which Cryptos Should You Pick?
Understandably, it may be impossible to conduct thorough due diligence on all these cryptos. That is why investing only in blue-chip coins with proven track records may be an optimal strategy for more risk-averse investors.
Considering the tokens associated with new crypto projects is also a possibility, although it’s worth pointing out that it’s entirely possible to lose all the money you invest in these for a number of reasons that include potential scams, projects failing to achieve their goals, and security risks. Note that the crypto community is on a mission to continually address scalability, absolute privacy, and interoperability problems.
Gauging which cryptocurrency has utility and which one doesn’t is critical. Investing in cryptocurrencies with utility ensures that you do not tie your money up in Ponzi schemes.
When selecting cryptocurrencies that will survive a bear market, it’s better to consider picking cryptos from a few asset classes and their financial metrics such as market capitalization, liquidity, circulating supply, and the traded volume. This type of data is accessible at CryptoCompare.
When selecting cryptos for your portfolio, most experts advise a strong allocation to BTC. The altcoins included could be from various segments of the market – exchange tokens, DeFi tokens, security tokens, utility tokens, Metaverse cryptos, Web3 tokens, and governance tokens.
How to Identify Which Cryptos Will Survive Market Crashes
No one can safely identify which cryptos will survive market crashes. Bitcoin has so far managed to stay afloat every bear market and quickly recovered when things turned bullish and is seen as a de-facto safe haven without the space if we count out stablecoins.
Even betting on stablecoins is seen as a risky endeavor to some investors, as the backing behind some of the largest ones in circulation isn’t completely transparent. Similarly, gold-backed cryptocurrencies often have a trusted central entity behind them, creating a single point of failure.
There is only one solution to maximize your chances of making good investments – thorough analysis. In cryptocurrency, two different types of analysis are often used:
- Fundamental analysis to determine the intrinsic value (the “real value”) of a token and its potential.
- Technical analysis to forecast possible future price fluctuation.
Fundamental analysis will tell you where to invest, and technical analysis will tell you when to invest. If you neglect fundamental analysis, you risk placing your money on projects with no real value; you probably risk investing in poorer quality coins.
If you neglect technical analysis, you risk entering at the wrong time and staying in the red for weeks or months, simply losing the opportunity to have been able to acquire many more tokens for the same price.
While there are hundreds of strategies for technical analysis, picking the best crypto that can survive the bear market requires thorough fundamental analysis, which we will focus on next.
How to Conduct Due Diligence on Cryptos
The fundamental analysis of a cryptocurrency is similar to that of a start-up. Yes, blockchain or decentralized applications (dApp) projects are very similar to start-ups – they seek to create value by innovating.