It’s no secret that crypto markets can be brutal. In 2018, Bitcoin cratered 80%, and many lesser-known projects didn’t survive. For the next two years, the market endured a crypto winter.
Forget trying to predict these severe downturns. Timing the market has long been a fool’s errand. It’s wiser to accept the cyclical nature of the market and prepare for a bearish period.
To learn how, we draw lessons from the past in the second installment of our Surviving a Bear Market series of guides.
What Happened in 2018?
After spending years on the fringe of the financial world, the cryptomarket exploded in 2017 and its market capitalization multiplied 46 times, reaching $829B in January 2018. But that month it suddenly crashed and lost 70% of its value in four brutal months
There were many reasons why. Analysts said the unregulated nature of the market undermined investors’ confidence in Bitcoin and altcoins. But the big culprit was initial coin offerings. Known as ICOs, these projects created new digital tokens on blockchains inspired by Bitcoin and presented them to the public. Ethereum and other breakthrough projects changed the financial world via ICOs.
3AC Liquidation, Celsius Layoffs, Voyager Freezes but BlockFi Strikes a Deal
Yet there was also a flood of pretenders that hit the market with little more than a white paper and a silly concept such as Garlicoin, UFOCoin, and Dogecoin, which, of course, survived and attracted superfans such as Elon Musk.
If that wasn’t enough, in January 2018 the popular Japanese cryptocurrency exchange Coincheck got hacked and lost $500M. The U.S. Department of Justice opened an investigation into illicit trading and crypto price manipulation. U.S. regulators said ICOs may be violating securities laws, and two ICO projects — Airfox and Paragon — agreed to register their tokens as securities.
The ICO boom was a classic market bubble, and after it popped the crypto industry endured its biggest test for the next two years. What the survivors did to reach the next bull cycle is fascinating.
Bear markets offer you the best chance for reflection. There’s less noise to distract you from acquiring knowledge. A bear market is a stress test where you learn the difference between hype and long-term value.
For example, Ethereum Ledger, Chainalysis, MakerDAO, Uniswap, and OpenSea were all founded during the 2014 and 2018 bear markets.
A bear market is coming and it doesn’t look pretty, but things are different from the previous ones. The narrative of the web3 world has changed. During the first bear in 2013, there was even no mainstream coverage for bitcoin. The long crypto winter of 2018-2020 winter scared away a great many builders and investors too.
Crypto is still far from mainstream today, but it has in many ways influenced the traditional finance world with a more established foundation. Nowadays crypto projects can be found in thousands of mainstream institutions, especially in fashion and entertainment industries such as COACH, Adidas, and Spotify.
And narratives like “web3 is taking over the world” and “crypto is here to stay” are getting more popular on social media despite the amount of volatility it brings.
Bear markets are brutal, but as we have seen many times before, the market does come back, sometimes with surprising energy. So use this time as a break, be optimistic, learn as much as you can, and most importantly, survive.
MakerDAO: Trial by Fire
Maker is one of the first projects focusing on decentralized finance and became a major use case on the Ethereum blockchain. As a crypto lending platform, it allows users to generate its stablecoin DAI by leveraging collateral assets approved by Maker Governance, its membership.
MakerDAO was officially launched during the crypto market’s peak in December 2017 and was quickly plunged into the volatility of the crash. “One of the reasons why MakerDAO is so resilient is that they were born into this kind of environment,” said Haseeb Qureshi, the managing partner of Dragonfly Capital, a venture capital firm that invested in MakerDAO, Avalanche, Celo, and other top crypto projects.
Christensen Drops Radical Plan to Remake MakerDAO and Address ‘Fundamental Problems’
He explained his optimism about this project. “In a bear market, you need to solve big problems,” Qureshi told The Defiant. “There are a lot of things that we know are fundamentally wrong with the way that crypto works, like interoperability, privacy, scalability, identity, user experience… you have to now start being very judicious with how you focus. “
When people raise tons of money and spend it indiscriminately in a bull market, it’s easy to be lulled into the belief the momentum is sustainable. But in a bear market, you have to have the clarity to focus on what can truly give you a competitive edge.
Uniswap: Vision is Crucial
As a founder, you need conviction and vision. As the creator of Uniswap, Hayden Adams believed an open-source financial system would lead to a more equitable distribution of wealth.
Uniswap’s idea of an automated marketmaker was far from popular back when it was first written. As one of the first DeFi applications, few people were truly able to understand the huge potential it underlined.
Uniswap Tops Ethereum in Terms of Daily Fees
When asked about the reason why they invested in Uniswap, Boris Wertz, managing partner of Version One Ventures said: “It had all to do with Hayden Adams. We really bought into the vision he laid out for Uniswap. Early-stage startups succeed on the strength and talent of their founders and Hayden is one of the best we have ever met.”
Adams’ compelling mission statement inspired its users, employees, and investors, which ultimately led to the great popularity it enjoys today.
OpenSea: The Benefit of Stubborness
OpenSea, the No. 1 NFT marketplace in the world with 237,000 users and $280M in monthly sales volume, had only seven employees in late 2020.
During the 2018-20 crypto winter, OpenSea remained focused on its business model and mission while competitors experimented with new models and features. One of OpenSea’s biggest competitors at that time was Rare Bits, which initially raised more funds than OpenSea.
However, Rare Bits seemed to be over-subsidizing its growth – it partnered with Crunchyroll to launch a series of “rare” digital anime stickers, and the creator tool it developed for YouTubers and artists didn’t gain much traction.
When asked how OpenSea survived the brutal market in 2018, David Finzer, OpenSea’s co-founder, told media organizations that it was stubbornness.
“[It was our] willingness to be in the space for the long haul, regardless of the immediate growth trajectory,” he said. “We wanted to build a decentralized marketplace for NFTs, and we were fine for it to be small for three to four years.”
This idea makes sense considering the relatively underdeveloped crypto market back then. Building an easy-to-use platform would be the fastest way to attract initial traders, and that strategy eventually helped OpenSea grow into a giant.