Ugh. So the Federal Reserve has decided to ruin the party. Your portfolios are bleeding. Our portfolios are bleeding. And this article is quite literally being written while Bitcoin is taking another dig at one of its critical support zones.
But, let’s take a step back.
It’s a weird thing in crypto: We find ourselves cheering on loose monetary policy because it’s good for our portfolios, even though it has a disastrous impact on everyday people. Clearly, the Fed needs to reign it in! As far as those crazy gains we dream of are concerned, we’re just going to have to exercise some patience. Meanwhile, there’s no point pretending it’s not grim out there.
In a recent article, we outlined effective strategies to thrive in a sideways market (and survive a bear-market!). In brief, by swapping your shitcoins for projects-backed by fundamentals, staking your stables, and earning yield on your existing (quality) tokens. Today, we’re going to lay out our thesis as to which tokens and projects are worth focusing on. For now – at least until the bull market explodes!
- The safest investments right now are quality Layer-1’s.
- A multi-chain future means multiple winners.
- Top Layer-1’s are (basically) bear-market proof.
- That doesn’t mean we’re in a bear market.
The demand for Layer-1’s is insatiable
Here’s a case study for you: Look what’s happening over in DeFi Kingdom on Harmony One. Global degens are so desperate to tend to their pixelated cabbage patches, the gamified DeFi application is carrying the entire Harmony Chain. ONE’s price has rallied against the market trend.
TVL is exploding. And just take a look at DeFI Kingdom’s growing dominance within the ecosystem!
Build it, and they will come.
Are we headed to a multi-chain future?
In a recent tweet, the cybernetic organism otherwise known as Vitalik Buterin shared his thoughts on the significance of Layer-1’s as the space matures.
Vitalik’s thesis is that the future will be multi-chain. Not cross-chain. And no, it’s not just because we’ll need other Layer-1’s before Ethereum 2.0 launches at some point this century!
We suggest you read the whole article (he’s a surprisingly good writer for a robot), but the main tenet of his argument comes down to security and “zones of sovereignty.” Vitalik uses the potential pitfalls of cross-chain bridges to illustrate a key point: iIf you hold your tokens on a bridging protocol and there’s an exploit, chances are they’re gone for good. Your only hope would be that the protocol has a war chest big enough (and the generosity of spirit!) to reimburse you for your trouble.
On the other hand, keeping your tokens within the sovereign environment of a Layer-1 blockchain is different: If you had 100ETH on Ethereum, and if it then falls victim to a 51% attack, you still have your 100ETH. But, if you moved that 100ETH onto a Solana bridge for 100 SOL-wETH, an attack could catch you with your pants down. Without a fully backed contract, your wrapped tokens might now be worth 60ETH.
A multi chain future? But which ones?
There’s no way of knowing which chains will survive the long haul. But chances are high that there will be a good many winners. All that talk about Eth-killers is so last year, bro. You don’t need to kill Ethereum to thrive. And it ain’t happening now. Besides, whether you’re on the side of a multi- or cross-chain future, everyone can agree: No single chain can carry the weight of a world being eaten up by these technologies.
There are no guarantees in crypto, but the main players are almost 100% sure to survive a bear market. Not that we’re in one (bear trend vs bear market – there’s a difference!). The chances of them going to zero, are, well, zero. But we could see some downside price action in the coming months (check out today’s article explaining what the hell is going on!). To make it through to the other side, you need to be invested in quality, and to most effectively manage risk, we suggest honing in on top-tier Layer-1’s with proven use-cases.
Many of the top Layer-1’s have secured their spots as winning picks. Some have shown insane relative strength amidst serious volatility (meaning the bounce will be bonkers when the bulls take control!). Plus, investing in a Layer-1 makes sense because it gives you exposure to the full ecosystem, without suffering the massive drawdowns on mid to micro cap tokens. They’re the closest thing to a chain’s very own ETF, striking an ideal balance between risk reward!
Above all, they’ll survive because they’ve got the network effect: the developers’ activity, user-base and infrastructure of validators and delegators and stakers. Say what you will about Cardano, but with over 70% of ADA being staked today, it’s made of steely stuff. And just check out Solana, snapping away at Cardano’s heels.
Where should I be allocating?
First things first: where not to be invested. Get the hell out of shitcoins. Now. Look at what happened to Axie Infinity’s Sweet Love Potion (SLP).
Ouch. Don’t assume your favourite shitcoin will be spared a similar fate. And trust us, you really don’t want to be the last one holding the bag!
Given the macro outlook, we’d recommend building a strong portfolio with a focus on large-cap Layer-1’s with proven use-cases. The only exception being Cardano. It has no proven use case but is an extremely durable project! As ever, DYOR, but Ethereum, Solana, Avax, Cardano, Atom, Terra, Fantom, and Polygon (a Layer-1 masquerading as a Layer-2, and with huge adoption!)… Grandpa Bitcoin aside, these represent some of the safest plays in crypto today.
There are two theses in play right now. The first is that the Fed is going to tackle inflation in the coming months. That means tapering, renormalizing the balance sheet, and cooling off the stock market. Remember: Alt-coins follow Bitcoin. Bitcoin follows equities. Equities follow the Fed. So in the end, it all comes down to them – there’s just no way of getting around it.
The second thesis is that we’re seeing an insatiable demand for Layer-1 solutions. Even Mr. Ethereum himself is confident we’re heading towards a multi-chain future.
Together, these theses present a pretty exciting opportunity: potentially as many as three, four, of even six months to start DCA’ing into (and staking, where possible!) the top-tier Layer-1’s (and quasi-Layer-1’s), most of which are at a major discount from their all-time highs. Now is NOT, and we repeat – NOT – the time to be aping into shitcoins. Rather, to maximize your upside potential while minimizing downside risk. Truth is, that’s always the smartest play, right? And remember: The real returns are made in the bear trends. A few months of bargain deals on quality Layer-1’s is an opportunity you’d have to be mad to miss.