5 metrics to monitor before investing in crypto during a bear market

Here’s five areas to focus on when deciding whether to invest in a crypto project during a bear market.

Is there a use case?

The cryptocurrency sector has no shortage of flashy promises and gimmicky protocols, but when it comes down to it there are only a handful of projects that have delivered a product that has demand and utility.

When it comes down to determining if a token should continue to be held, one of the main questions to ask is “Why does this project exist?”

If there is not a simple answer to that question or the solutions offered by the protocol don’t really solve a pressing problem, there is a good chance it won’t gain the adoption it needs long term to survive.

Identify a competitive advantage

In the cases where a viable use case is present, it’s important to consider how the protocol compares against other projects that offer solutions to the same problem.

Does it offer a better or simpler solution than its competitors, or is it more of a redundant protocol that doesn’t really bring anything new to the table?

A good example of unnecessary redundancy is the oracle sector of the market, which has seen a handful of protocols launched over the past three years. Despite the growing number of options, the oldest and most widely integrated oracle solution is Chainlink (LINK) and it remains the strongest competitor in the field.

Does the protocol generate revenue, and how?

“If you build it, they will come,” is a cliche expression tossed around in tech circles, but it doesn’t always translate into real-world adoption in the cryptocurrency sector.

Operating a blockchain protocol takes time and money, meaning that only protocols with revenue or sufficient funding will be able to survive a bear market.

Identifying whether a project is profitable and where the revenue comes from can help guide investors who are interested in buying decentralized finance (DeFi) tokens.

If a project shows limited activity and revenue, it may be a good time to start evaluating whether it’s undervalued or a investment that should be avoided.

Are there cash reserves?

Every startup is meant to have a war chest, treasury or runway as prior to investing, it’s important to identify whether or not the project has sufficient funds to survive downtrends, especially if providing yield on locked assets is the primary incentive for attracting liquidity.

As mentioned earlier, running a blockchain protocol isn’t cheap, and the majority of the protocols out there might not be liquid enough to survive a lengthy bear market.