November 2018 has been one of those very bearish months during 2018, in this month alone the market has dropped from around $220 bln to 140 bln, or more than 35% has been lost within almost a single week. Many reasons has been attributed to this massive sell-off, some suggest that it is due to the Bitcoin Cash controversial hard fork, while others attribute it to simply Fibonacci sequences where the next resistance level is where we are currently. Lastly, some analysts suggest that Christmas and New Year are coming and people want to have a peace of mind by holding on their cash. Regardless to what has really caused this bloodshed in the market, what should ICO Entrepreneurs & Investors do at this stage?
Bear Market From Investor Perspective
Most of the veteran investors know that all great new ideas are volatile. This definitely includes the blockchain technology which is still at its infancy stage — as well as the internet was when it emerged to public during the 90’s. Those who invested at the early stage of the ‘dot com bubble’ have seen both the ups and downs of the market, they have witnessed two digit numbers appreciation of their stocks as well as meltdown of the entire portfolio. While those who entered after the massive market correction and wisely held on their portfolio for many years have literally made millions. Blockchain technology is here to stay, this is a fact already which has been acknowledged by the world leading regulatory bodies and that is why there is a global effort to regulate this new sphere — sometimes even over-enthusiastic, because the market understands its disruptive power.
Since the new innovative technology is here to stay, and since we have been going through a market correction for an entire year, professional investors with a long term vision release that there is no better time for loading their portfolios than now, specially when most of the crypto is trading at below the cost of its own production. For example, the average cost to produce one BTC is now over $6,000 while it is trading in a range of $4,000-4,500. The cost of producing one ETH is around $200, it is trading around $130. These facts mean that cryptocurrencies right now are very highly discounted.
Another perspective investors should be looking at is that all ICOs or STOs are now highly discounted too. Since most ICOs raise their funds on Ethereum and the price of ETH has dropped almost 40% during the last 2 weeks alone, this means that the purchasing power of 1 U.S. dollar is so much higher, and investors can get more tokens or equity for the fiat money they are holding on currently. Pay attention that this applies to long term investors only, since it is impossible to time the market, nether the bottoms nor the peaks. Those who will invest on strategic ICOs and STOs will eventually end up with the next unicorns, just as it has happened during the 90’s. The history repeats itself: all weak projects will naturally die and the high quality ones will become the next big thing.
Bear Market From Blockchain Entrepreneur’s Perspective
Entrepreneurs face even the bigger challenges in a bear market: from one hand it is hard for them to raise funds due to the fear that spreads around investors; on the other hand, the funds which they raise in ETH, for example, could lose big part of its value during the few months period of fundraising. This concern means if the founders wanted to raise 1,000 ETH the equivalent of $220,000 at the beginning of November, by now they are worth below $140,000. Such thing messes up all the budget calculations. So what measures can entrepreneurs take in such situation?
There are few strategies that the entrepreneurs can follow. As a start, extend the marketing period and shorten the fundraising period — this way the money raised will have less exposure to market fluctuations. Alternatively, the founders can decide to accept fiat currency as in parallel to crypto which may or may not be converted later on according to the needs. Lastly, entrepreneurs can raise purely through fiat by giving away equity or security tokens, and once the platform is up and running they can release the native token gradually depending on demand.
Those are few of the many strategies that entrepreneurs try to creatively implement in order to increase their chances of success. Wise startup runner must monitor the changes, keep the finger on the market’s pulse constantly, and thus take all necessary precautions. At the end of the day, if the start-up can function with a minimum of $10 mln and this sum loses 40% in 10 days due to market volatility — such fluctuation could risk the future of the whole projects, and we are to observe such downfalls yet.
As we can see, a bear market is difficult for both investors who fear the risk of losing on their investments and for entrepreneurs who find it extremely difficult to raise funds with crypto prices declining. However, at the positive side, long term investors have the best chances right now, such investors have no plans to cash out in month or two and maybe not in a year or two. Value investors treat their investments like a property — i.e. we wouldn’t sell our newly purchased apartment because its price dropped 50%, but we keep it for 10+ years regardless of the ups and downs of the real estate market. The same strategy should be applied to new emerging technologies by now: such innovations take years to mature, but once they are, the return can be astronomical, and only those who hold on their investments during the market downside, will also enjoy its recovery and even high gains through the coming few years.