Standing in the Dust of FTX, What Can Crypto Holders Plan for in 2023?

By Carl Sachs, co-founder of Finterest

Without a doubt, we are experiencing one of the most trying times in the entire history of the crypto industry. In situations like these, it’s hard not to look back at your portfolio from last year and begin to wonder if you’ll ever be at those levels again. Chances are you’re thinking one of two things: “Is it time to pack in the bag?” or maybe “I can risk-on here – it won’t go any lower, and I can make it back quicker!”

These are all very common emotional responses to the types of quick and aggressive market moves that we’ve seen over the past year. But before you pull the trigger on one of these impulses, let’s dive into how you can think rationally and beat the bear.

Assessing Cause and Effect: Why is the Market in Shambles?

Luckily for us, a lot has come to light in the past few weeks, mainly regarding FTX. If you haven’t been keeping up with the news, here’s a TL;DR: FTX CEO Sam Bankman-Fried over-leveraged himself and his company, as well as funneled billions of client funds into Alameda Research, the exchange’s sister fund. But before long, Alameda lost the funds to severe market conditions.

The FTX/Alameda collapse has had a ripple effect on traders who relied on FTX, as well as anyone involved with the exchange and Sam Bankman-Fried at a business level. And unfortunately, this is not the first time we’ve seen a collapse like this in 2022. Other examples might include Zu Shu/Kyle Davies and 3AC, or Do Kwon and LUNA. But now that we know the cause, we can assess the damage.

The fallout is severe. Some of the biggest players in the space got liquidated – and, as a result, will not be bidding at these levels. But looking at this crisis from the flipside, news releases within the space show us that crypto is still raising funds to build new projects, and there are still major exchanges alive and kicking.

What Goes Up Must Come Down – So What’s Next?

So what does this all mean for the future of crypto? I would decipher it as a “much-needed cleanup.” Every bull market involves big players with lots of money who get ahead of themselves. And when the time comes to unwind, it’s impossible for them to do so without hurting retail, themselves, or both in this case.

Knowing this, we can assume that the reason crypto is crashing is due to these over-leveraged players, and not because of the general use case and long-term vision of crypto. With this in mind, it’s time to make a plan.

Identifying Early-Stage Winning Projects in a Bear Market

When planning to position your portfolio in a time like this, it’s important to understand which area of crypto you are passionate about. Personally, I’m a big believer in Defi, so we’ll use this as an example.

When searching for Defi projects to invest in, I look at two main things: team and tokenomics. Using these two metrics, you can find a good bundle of projects that pass your tests and diversify your portfolio among them.

There are plenty of revolutionary ideas in crypto, but only a few with hard-working teams with strong, clear visions of what they’re creating will make it through times like this. When assessing a team’s strength, I look at their previous employment history, GitHub commits, socials, and any other information I can find about each individual online. This gives me a good idea of whether or not I think they are capable of bringing their vision to fruition.

Tokenomics can help you learn more about the potential price action you should be expecting from a DeFi project. This might include VC and Team vesting periods, potentially dangerous yield scenarios, top wallets, and more.

Beating the Bear

The bear market can be a very depressing time for anyone involved. It’s important to think rationally and make smart decisions as real opportunities are presented in times like this. But

depleting your capital before you get to that point is counterproductive. Instead, try to figure out why this is happening and assess the damage. When you can do that, you should have a better idea of when and where you want to park assets in your portfolio.

Author Bio

Carl Sachs is co-founder of decentralized borrow/lending protocol Finterest.