Bear Market Thoughts

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It's official. We're in a bear market. Not that it's news to you. As long as you haven't been livingly in peaceful ignorance under a rock (I'd be jealous of anyone who was), you're likely already well aware that the markets are down bad. Worse than bad actually. I'd probably say that the last month has felt a little like an apocalypse in the crypto world.

So I guess it's time to pack up our bags and give up right?

Nah. Not at all actually.

Yes, we do have gigantic pillars of the crypto ecosystem collapsing around us, but that definitely does not mean everything is doomed. I actually find it quite fascinating to watch how this all has been playing out, and this is coming from someone who is quite in the negative on their investments. For anyone like myself who got roped into this space at the peak of the bull market last year, it's very likely you're in the negative too. It sucks. There's no way around it.

However, if you didn't completely excommunicate yourself from the crypto world, it's clear to see that this space is not going to disappear. The strong teams are trudging along just like before, the good projects continue to innovate, and the communities that make this space special are still shooting the shit like always.

Maybe this just a product of the internet generation, but when things get bad... we just make jokes. Twitter may not always be the best place to get investment advice, but it is a good place to gauge sentiment. Obviously the sentiment is way different than it was last fall when you could toss money at anything and you'd double your investment, but there is a key takeaway I gather from today's cryptotwitter (CT) energy.

The current CT vibe (at least on my feed) is a combination of people speculating when the bottom will be in or people numbing the pain of the current market with memes. Importantly, both of these prove my point — people aren't leaving. Of course that's not 100% true. Sadly each time a cycle like this happens, there will be a huge group of retail investors that joined the bull market late, lost their money, and will swear off crypto forever as a scam. These are likely the same people who will FOMO back in at the top of the next bull market.

In general though, most people who associated themselves with the space before the market crash still have long term conviction in crypto. So they're sticking around. The reason we're able to joke about the pain and why there is a frenzy of talk about "wen bottom" is because everyone has the same opinion about where we're going long-term (up). The idea of a bottom infers that we know we're gonna go back up after. So there is still some hopium to be had.

Let's take a look at some of the reasons why this space is still super exciting and why it might be a good time to get involved. (I am taking some inspiration from Not Boring and Milk Road for parts of this, so credit where credit is due. Both are great resources so check them out)

We've Been Here Before: Let's start by calming your nerves. This is not the first bear market crypto has seen. It's the fourth actually. If crypto survived bear markets in a time before Matt Damon was shilling crypto during the Super Bowl... I'd bet that it'd survive now.

Moreover, every time we go through one of these "cycles" of wild bull market to painful bear market, we leave bigger than we entered. Bigger in market cap. Bigger in community. Bigger in brainpower dedicated to the space. Bigger in public awareness of the space.

It's like (what I imagine) raising a kid is like. They start off small and not very smart, yet as they get older, it'll look like they're making progress... but then they make stupid mistakes and get knocked down a few rungs.

Eventually thought they'll mature through all of the growing pains and you'll have a fully functioning adult to show for it at the end. If that's the analogy we're using, I'd guess crypto just finished kindergarten. We started drawing cutesy little pictures (NFT's) and learning numbers (DeFi) and are trying to avoid bullies who take our lunch money (rug pulls). Just imagine how much smarter crypto will be when it gets to "high school". It'll only get better from here.

Thinning the Herd: Bull markets bring a lot of excess. So much money is flowing in that it seems like every project that launches a token is guaranteed to pump. This is peak retail investor mania. Everyone wants to make it big because it seems inevitable. New people bring their money to the space and throw it anything that moves. In response, a lot of shitty copy-paste projects pop up to catch some of this capital. This is typically where you find peak ponzi-nomics. Everyone throws their money at terrible tokens, yet everyone is making money...that is until they're not. Whoever gets there too late are SOL (shit outta luck... not Solana).

Badly designed protocols can hide their lack of utility and lack of revenue while in a bull market. In a bear market, they've got no shot.

This is good. Bear markets are much less cluttered because all of the bullshit falls away and leaves behind only the good projects. If bull markets are the time to get excited about price action, bear markets are the time to get excited about watching the quality web3 infrastructure being built before our eyes. =Plus the bear market historically has been the best time for both building and investing.

Focus: Bear markets are the perfect time to focus.

As an investor, this is the opportunity to restructure your portfolio, learn the fundamentals behind good projects, and process the many humbling lessons this market just slapped us in the face with.

As a project, you can now finally build without the expectation to return positive price action for your token holders. You can find the things people actually want to use, and you can create them. If you wait till the bull market to start building something huge like the "Facebook" of web3, you'll probably get beat out by someone who's already grinding away on it now. Use this time wisely.

As someone who wants to get involved in this space, now is when you learn your craft. Pick an ecosystem, topic, or skillset and use this time to become an expert at it. That's how I went from a dumb retail investor who was writing about things way above my paygrade to becoming a writer for one of the best projects in the space (Love you Trader Joe❤️).

If you want to be an NFT expert, go scour discords and twitter to learn the culture. If you want to be a trader, learn how to trade now when the market it difficult to trade. If you want to be a community builder, start helping a project build their community. Not next week. Not next month. Right now. Focus up. We've got no clue how long this bear market will last, so I wouldn't waste too much time. The next bull market will take off without you if you're not prepared.

**We're Early**: I'm a little on the fence of using the terminology that reeled in so many retail investors at the end of the last bull cycle. All the "WAGMI" and "We're early" talk definitely convinced people to throw more money than they could afford to lose into risky projects. These phrases still have their place in the web3 culture, but if you're still new around here, take it with a grain of salt. However, here is an example of how early we actually are.

Ethereum is the 2nd largest cryptocurrency behind Bitcoin, but it's the largest smart-contract compatible blockchain by a sizeable amount. What that means is that you can build protocols, tokens, and NFTs on top of this chain. So it's very versatile. Despite its relative huge size in the crypto space, it currently only has around 4000 monthly active developers working on it. Another report shows that the total monthly developers of all of web3 sits at around 18400. For scale, Google employs over 27000 engineers alone. Here's another one — Robolox, the video game mainly played by children under the age of 12, has over 345,000 app developers! That's insane. Imagine when more of that brain power gets directed to web3. There's a lot of progress still to be made.

Crypto and the web3 ecosystem in general is simply a huge experiment made up of tiny experiments. Everything is being tested in real-time. All the successes and all of the failures are in the full view of the public. This is a good thing. Everyone is seeing what works and what doesn't so we're seeing a "speed run" of innovation. The more people that get involved means more new ideas and new perspectives. This is how we will continue to evolve and get better in the space.

Web3 Use Cases: The classic question for people who don't yet understand crypto: why is it worth anything? Well why is gold worth anything? Why is AWS worth anything? The same reasons the Bitcoin (store of value) and Ethereum (allows you to build digital products on it) and countless other projects have value. The same value-props in the previous iterations of the economy/internet still apply for web3. However, for people that haven't explored the space yet, the use-cases still feel foreign.

I could try to explain a bunch of these myself, but Packy from Not Boring did such a good job summarizing a list that it feels pointless not to just post this screenshot from his work and build from there. So that's what I shall do...

That's a solid list of use-cases, but let's revisit some of these for some more clarification.

Stablecoins have a market capitalization of $155 billion. Why? For two main reasons: they are a stable way to hold value on blockchains & they make it super easy to move funds. The first point is an important one for investors looking to take profits or escape volatility. For some reason in today's internet driven world, if I want to move funds between bank accounts, I still have to wait 1-5 business days. The financial rails of web2 are SLOW. I imagine in the future we will look at "bank transfers vs. blockchain stablecoin transfers" with the same mindset as we look at "traditional mail vs. email" today. I don't know if the incumbent solutions will ever fully go away, but we sure as hell will prefer the new way.

In addition, approximately 31% of the worlds population is currently unbanked. Stablecoins effectively allows anyone to "bank" themselves. This also leads into the next point — DeFi.

DeFi (a.k.a. Decentralized Finance) was literally only created two years ago. Yet it now has over $100 billion worth of total value locked into these projects/protocols.

DeFi allows for the creation of the old financial tools of the world on the blockchain. I won't dive into all the reasons why this is powerful, but on the surface level, here's some of the ways DeFi is used: Decentralized exchanges are a use-case in the same way Robinhood or Charles Schwab are a use case. They allow for the creation of liquidity between pairs of assets (this time without a central party). Protocols such as Compound and Aave allow for lending and borrowing, another vital piece of any financial puzzle. These protocols once again remove a middle party of sorts and allow for peer-to-peer or pool-to-peer lending. These are great innovations which sit at the very foundation of building a new financial system with cryptocurrencies.

Another big use case is NFT's. To many people, this is just as abstract a concept as DeFi. I too have come full circle on this, and I finally understand the appeal. At it's core NFT's simply give physical properties to digital items (uniqueness, ownership, and tradability). On top of these physical properties, they also have digital properties (programmability and composability). Most of what you've probably heard about thus far is using NFT's as collectibles. This is a totally valid use-case. However, NFT's allow for all sorts of different innovations and use-cases outside of just storing digital art. They have actually led to a huge influx of creativity both artistically and technically. Give it a few years and NFT's will be a wildly bigger part of the culture than they already are.

Blockchain gaming is also a huge avenue for growth in this space. When that finally catches hold, it will be wildly big boost to the crypto space.

Creators can use the blockchain and NFTs to properly monetize their content. From video creators, music artists, digital artists, and more, the last generation of the web did not lend itself to paying these creatives for their work. Now that is changing. In 2021, about ~23k NFT creators collectively made ~$4B. On average, that equates to $174,000 per creator.

That is impressive in comparison to the average rates at Facebook($0.10), Spotify($636), Youtube($2.47).

I'm gonna stop here for the "web3 use-cases", but there truly are so many possibilities.

The Tech is Scaling: One of the largest problems with blockchains is scalability. The goal is always to increase the reach of a network and get more users on a blockchain, but as these networks grows, they can get congested. That's why in the peak of the last bull market, it costed hundreds of dollars to do a transaction on Ethereum. However, now with the innovations in the Layer-2 space, this is becoming a very solvable problem. Now new networks can be created on top of a base chain(Layer-1) and spread out the congestion. Another exciting "version" of this is subnets on the Avalanche network (I'm a big Avalanche fanboy so I mention them a lot). It will be very possible to support significantly more network usage with developments like this. That's very bullish for crypto.

Institutional Adoption: The floodgates have opened. There is a lot of money that is being poured into the space right now. Huge venture funds are raising enormously large rounds to invest in the next generation of blockchains and web3 projects. On top of that, traditional brands are doing their best to find their place in the metaverse. McDonalds, the NBA, Lulu lemon, and even Guy Fieri have all started to scout out their web3 IP. It's hard to imagine the world not moving more towards web3 with all of these powerhouses pushing it in that direction.

In conclusion...

The macro-environment of the world right now is in a pretty terrible spot. We could very easily be heading into a recession within the United States. Inflation is terrible everywhere. Everyone who put their money in stocks because they thought it was safer than crypto are watching those investments crash. It's not great.

I'd also bet the the crypto crash is not over. We've almost surely got some more downside ahead. I've got no clue how much lower we'll go or how how long the bleeding will last, especially with the current economic situation, but the moral of the story: I think crypto has a bright future. I'm not telling you what the right decision is on the investing front because I have no clue, but I'm bullish on being involved with the crypto space. Those are my thoughts at least. Hope I'm right.

-Levi