DeFi has become the rave of the crypto market, but many traders are skeptical about investing in it due to the market situation. This article gives insight into how to identify the most profitable DeFi tokens in the bear market
DeFi tokens are a very profitable investment for many cryptocurrency traders and one vital skill a crypto investor should possess is the ability to know when to sell or buy tokens, especially in the case of a bear market.
Hence every cryptocurrency trader needs deep insight into the hidden potential of most digital assets.
Having the foresight to pick out a token that will eventually increase in value, is important.
What is DEFI?
If you’re fairly new to cryptocurrency, this word might sound strange to you. DEFI stands for decentralized finance.
It deals with financial assets and products that are designed on the blockchain (Ethereum) and managed through the use of smart contract technology.
This technology is designed to take the power of centralization away from autonomous authorities allowing users to be in control of their transactions, information, and privacy.
Hence, with this new innovation, people can take full control of their financial assets and transaction including receipts and payments without the interference of a third party.
The actions carried out by DEFi are done through coins and tokens
DEFI Tokens Vs DEFI Coins: The Difference
When it comes to DEFI, there exist two distinct assets;
DeFi coins are a form of fiat money with transfer value and have a unique blockchain. A DeFi coin ensures the transfer of value in a financial transaction and these coins are key in running their own unique native blockchain.
DEFI tokens encompass a broad range of tokens that serve different purposes like the representation of assets, NFTs, and even passwords to access certain resources.
Most times DEFI tokens have market value but not in all cases (in this article we will be referencing those with market value) and they can be created on already existing blockchains.
The Crypto Market
Being one of the most profitable yet volatile markets in the world, the cryptocurrency market like every other market experiences two market conditions.
The two market scenarios depicted in the crypto market are;
The Bull market
The bull market normally precedes a bear market and it depicts a favorable rise in the economic environment of the crypto market (an increase of around 40% in prices).
This means that there is a positive impact being made by crypto investors that will in turn increase the prices of products and assets on the market, this is sometimes initiated by the transaction of fiat money for crypto and a bull market can go on for as long as supply meets demand when this ceases to happen, it brings about a bear market.
Hence, the Bull market spells favorable conditions for crypto traders and investors, it’s a crypto market boom every crypto enthusiast looks forward to.
The Bear market
The bear market is a significant and constant drop (around 20% or more) in the value of cryptocurrencies.
This is usually brought about by the downward pricing of projects due to high supply but relatively low demand that could spur doubt about the prices of currencies rising again.
Usually, at this point, some traders are looking to sell off their coins before it hits rock bottom while others are looking to capitalize on this market and get cryptocurrencies for a low value.
The Bear market is the opposite of the Bull market, and with its unfavorable and unpredictable conditions, many traders and investors usually pull back in their numbers while some choose to take the Dip and buy assets at their lowest rates
Signs of a Bear Market
The best market is highly unpredictable hence a trader can never really tell when it’s over and safe to purchase tokens but here are a few things that may signal that downward slope;
- High Government intervention
- Low demand and High Supply
- Slow Market
High Government Intervention
In some parts of the world, the government is in an active fight to restrict the usage and trade of coins and tokens and it may pose difficulty in actualizing sales thereby negatively impacting the market.
Low demand, High supply
If a seller notices he has a huge portfolio of assets that he hasn’t sold, he may be tempted to reduce his prices to get those coins and tokens off his hand, this may lead to a butterfly effect wherein other traders hurriedly reduce their prices so that that they can sell off their products and in turn cause a bear market.
During a bear market, the rate of transactions cost of assets is quite high and may discourage the sale of coins and tokens
One huge feature of a Bull market is the rapid pace of prices and transactions which is not experienced in a bear market as business is quite slow and uneventful.
How to Identify DeFi tokens with potential in the bear market
While many investors may be scared to take a big risk in investing during uncertainty, there are ways to study the trends and still identify profitable tokens for investment.
Here are some of them;
- Observe the tokens market trend
- Identify the purpose of the token
- Study the origin of the token
Observe the tokens market trend
Studying a token’s value trend over the previous market is one of the ways to discover if a coin has potential.
If it’s not a relatively new token, it can be checked to see just how much that token had fallen in the past, whether its value ended up increasing, as well as the time it took to get back up in price.
If this is a repetitive trend with that specific coin, there’s a possibility that it may just repeat (though this is not a guarantee).
The purpose the coin serves
DeFi tokens aren’t necessarily just currency and serve different purposes, they can be used for various things. Some tokens are used to purchase gas, pay you to view ads, and so on.
Now understanding its usefulness will place questions about how much it’ll be in demand once prices are lower and how vital this token is in carrying out various functions.
For instance, a gamefi token related to a popular game will rise as the interest of users in the game increases.
Study the origin of the token
This is a very important factor for considering a token to invest in, the origin of a token is a strong determinism factor of its strength and profitability.
Therefore, it’s more certain for a coin backed by a reliable and well-known company to bounce back after its prices have fallen in the market.
This is because the company can easily bring a pool of investors’ interest by controlling the media and spreading news, getting well-known celebrities to promote their coins by partnering with other companies.
Even adding special features that other tokens may not have not will bring investors.
These things can easily get a token to rise quickly after experiencing a fall in a bear market.
The Cryptocurrency market is highly volatile, one can never really tell when it will rise or it will fall but in the event of a bear market, that is not always a license to run away from crypto trading.
Picking the right time to purchase a low-value coin after careful observation may just earn you a couple of big bucks in the long run.