Cryptocurrencies have become a powerful speculative tool. All crypto media produce reports of current prices and dips are treated negatively. But why does value and valuation rule the projects? Perhaps it is worth liberating ourselves from this paradigm of thinking.
The last few years have fired up all blockchain enthusiasts with huge increases, crypto millionaires and even billionaires. Everyone wanted their piece of the pie. In all this sheepish rush, it's easy to forget the basics.
Speculation is nothing more than prediction. In this case, predicting the value of prices. Let's dispel the first myth right away. One does not lose on dips. You always make money – as long as you properly predict which way the market will go. Playing for price decreases – is taking short positions, simply short. And increases – is to take a long position, long. In all of this, the most important thing is profit, not design or technology.
But how does one speculate? There are many schools of thought. The basis, of course, is analysis. Technical, e.g., of the chart, and fundamental, e.g., of the Company. In the case of technical analysis, many mathematical and geometric tools are used, such as Fibonacci sequences, ratios, harmonic systems or repeating patterns. Current trends, support, and resistance points are determined, and then positions are taken accordingly. If the chart goes our way – we make money – no matter if the project gains or loses value. Nowadays, it is worth remembering the lots of scripts and bots are running in the background which also influence the market. Consequently, there are phenomena such as short squeeze, in which a wave of declines causes an avalanche effect, where bots automatically enforce operations that drive even more dramatic declines. In the case of fundamental analysis, one does study the Company's reports, results, and condition. If the Company is growing at the right pace, has a strong management team and is executing its growth strategy – the investment can be profitable in this case. By combining these two techniques, we can determine which projects are worth investing in. However, this does not change the fact that we cannot predict the future, so spectacular losses and collapses happen, and the adrenaline that accompanies this attracts not only speculators, but also gamblers. The statistics are absolute – 86% of people who speculate on financial markets suffer losses.
So how does speculation relate to the development of technology and projects? Unfortunately, here there is no clear answer. It is a double-edged sword. Speculative frenzy and accompanying increases can develop a project to incredible proportions, but projects not ready for such success – can fail spectacularly. (Luna and Do Kwon) During the pandemic, the money supply increased dramatically (about 40% of new, freshly printed money was in circulation). Even then, it was obvious that inflation would be affected because of this. Over-liquidity caused an unprecedented situation. The market was disconnected from reality, and the values of virtually all projects rose. Even those that, due to the pandemic, did not work. Absurdity. In addition, various persuasive techniques like FOMO (fear of missing out) and FUD (fear, uncertainty, doubt) are used in speculation. If a project becomes a tool used to implement these techniques, its value can rise or fall – regardless of its fundamental value. Excessive interference in markets and business cycles can end fatally.
A slump, or outflow of funds from a given market, is nothing more than saying “check.” All decisions made in conditions of over-liquidity are not always based on good analysis and market data, and sometimes simply because the funds are and must be placed. Today, projects must stand on their own feet, and only those that have made the best strategic decisions will thrive. A time of bear market is actually a great time to grow for projects and companies that work on technology, not speculative value. A bear market is also a time of less hype, both media and marketing. Marketing, after all, is a powerful speculative tool that can significantly increase a company's valuation. In a bear market, there are fewer funds for marketing. Such conditions are excellent conditions for technology development. We do not chase numbers and valuation. We don't focus on marketing. Furthermore, we create a valuable product that must defend itself in the market. A product that customers want to use because it brings them value or solves their daily problems.
To answer the question in the headline: no, a bear market is not a bad thing. It's a natural phenomenon for anyone familiar with business cycles, and the calm and reevaluation it brings is healthy for the market. In the context of the blockchain network, speculation has grown to enormous proportions, yet the network has practical applications independent of speculation. The development of blockchain networks is most optimal in the long term, under market verification, where new ideas and solutions are tested on an ongoing basis. Our goal is to develop the technology and adapt it widely. Speculation, although it can bring positive results, is not everything. Let's not forget that.