9 May 22 – Outlasting A Bear Market

Should we buy or wait when it's all blood in the markets?

Since my last article that expected a bullish month of May, things have taken a 180º turn as we head into full-blown bearish mode. Coinbased launched, albeit to a restricted group, to pretty much no fanfare. Yuga Lab's Otherside dropped their land (Otherdeeds), breaking all sales records in terms of volume, secondary sales, and even the cost of gas.

There was good momentum but why didn't it last? It came down to the macro market conditions.

On a fateful day, with the FOMC announcing a 50 basis point rate hike in a bid to combat inflation, all markets went south. Even the bond markets were hit as interest rates spiked. The only assets that was relatively untouched were USD and Gold.

Shortly after, BTC broke below the crucial $35-36k support and looks to be heading for the next major support at $30k. Likewise, ETH broke below the $2.5k support level and looks to be headed to the next major support at $2k. With such bearish outlook, NFTs inevitably took hell of a beating.

Understanding ETH vs NFT Prices

One of the arguments about declining ETH prices is that it is good for NFTs because it makes it cheaper for new entrants who price NFTs in dollars to enter the market. While that is true, it doesn't apply for the current market – why?

Crypto is perceived as a risky asset – NFTs even more so. Further they are so nascent, most people do not get their significance and only recognise it to be speculative and illiquid (very true btw).

If crypto markets were to remain healthy, and ETH were to become cheaper, it can attract new money. However, in the current context, the fear and uncertainty that looms the crypto market is overwhelming. As such, new entrants will hardly be excited to partake in the risky and illiquid "investment". Existing participants are also more fearful and reserved with their ETH spending precisely because of this uncertainty.

With the waning buying demand, and the increased selling pressure, this cascades into the rapidly declining floor prices we see in many NFT collections, blue-chip or not. For collection with plenty of speculators as opposed to true supporters or believers, the selling strength is even greater, which is why you see those floor prices crash even more.

The NFTs with relatively strong floor prices fall under two category:

  1. Legit projects with holders who are agnostic about prices e.g. more collectors were investing rather than speculating, or they don't give a hoot about the money they left with the project

  2. Small supply project whose holders can't care much about selling

In such a market, it's extremely challenging for new projects to launch. However, some projects can still sell out and have short-term bullishness – whether they can outlast the sentiments of the bear market is another consideration.

Buy Into Weakness, Sell Into Strength

Increasingly, I see more holders of legit projects wanting to sell now as they expect prolonged weakness in the market, which can present better opportunities. That is a fair decision, but it's also a typical behaviour of selling into weakness.

The conventional wisdom is to sell into strength – and you might lambast me about how it is obvious you should have sold even just a week ago. But no, I'm not here to say that it's wrong to sell or hold. Rather, I feel that if you wanted to sell, the better strategy was to have a take-profit or sell strategy right from the start, as opposed to making a snap and reactionary decision based on market sentiments.

This is why I try to instil a partial take-profit strategy when the markets are bullish. It's not about me exiting the market – rather it's about me preserving liquidity so that I can have the option to buy (or do nothing) in a time like this. For NFTs, you can't sell half a token, so it becomes more about buying multiple NFTs.

If you need to sell, and if you really need the money, do it by all means. It might prove to be a smarter decision than holding. At the same time, the question to ask is: Were you over-leveraged? If you were, should you have avoided that position? The other consideration is when you plan to reenter after a sale (or not at all), because if you're trying to time the bottom, you should also be prepared to miss out. Then what?

One of the common sights is people selling now just to try catch a bottom. And when the market reverses suddenly, they FOMO in at prices higher than they sold at, which begets the question, why sell in the first place? Holding is an art – and it's perhaps the most sane strategy to avoid being swayed by the market sentiment – but holding also requires you to be adequately positioned in terms of having the right asset to hold, and having the financial ability to hold.

The savvy investors or the ones with more liquidity will in fact be buying into this weakness. Because if you understand and believe in the asset, you will see this as an opportunity rather than an outcome. This applies for all assets, not just NFTs.

Note: Every one has differing financial abilities and risk tolerance, so you should not act based on a single recommendation. Rather, you should consider your context relative to what is presented and find a strategy that fits you.

Is It Better To Buy Or Sell NFTs Now?

The bear market presents buying opportunities. Having said that, not all discounts are worth the buy. It boils back to the fundamental of the asset and whether it is something viable for the long run.

Buying now also entails more risk as the markets can continue to spiral downwards and you will be left with an illiquid and losing position. So you should only buy what you can afford to lose, or what many say you can afford to go to zero.

If you're selling, just be conscious of what informs your decision and what you plan to do following the sale. Given the short duration of holding the asset, ask yourself what went into the purchase decision and later, the sell decision, and what you hope to do differently the next time.

There's no right or wrong action here, and everyone has their unique circumstances to navigate. Rather than shame people for having paper hands or trying to catch a falling knife (if it is one), it's more meaningful to reflect on our personal decisions and learn from experience.

I know of many others who choose to sit back and do nothing too, even if they have the means to participate. To them, there's plenty to learn from observing, which is fine too. The challenge of being an observer is that you might get comfortable and end up not participating at all, justifying your action with either "I'm too late for it", or "I told you so".

I expect markets to continue in this painful mode – until it gets too painful and the FED reverses on their plan – which can then lead to another massive pump. Yes, there are buying opportunities, but it's also a riskier environment to navigate.

TL;DR, there's no one right move. You do you.

Stay safe, stay sane, and let's be a little more empathetic to one another. Namaste.