The public markets are a mess. The private markets are a mess. The precious metals markets are a mess. And the crypto markets are a mess. Those are the facts.
I fully expect the crypto markets to be highly volatile and continue to bottom out over the next six to nine months. It might take longer. But people need to see inflation under control and the economy on more solid footing before they begin investing with confidence.
That doesn’t mean we should stop investing, though. Buying low and selling high — that’s how investors make money. Unfortunately, buying low often means acquiring assets when the market is falling.
Psychologically, that’s one of the most difficult things to do in investing. It’s just hard to buy when the market is crashing. It requires immense discipline and intestinal fortitude. After all, not catching falling knives is one of the first rules of investing.
So before we jump into today’s recommendation, let’s review the rules of the road for investing in bear markets.
- Do not invest money you can’t afford to lose. The markets are in for a rough ride. And if you can’t afford to lose the money, don’t invest it.
- Focus on projects with strong use cases.
- Look for teams or communities who are active and committed to their projects.
- Always enter a position using dollar cost averaging. That means buying a small amount each week rather than buying your entire position at once. That way, if prices continue to fall, you lower your overall acquisition cost.
- Don’t try to time the market perfectly. Nobody can. And I believe this bear market will be around for several months. So if you want to wait, that’s perfectly okay. But when you do invest, make sure you utilize dollar cost averaging to buy into the market.
- Diversify your crypto portfolio. From a percentage standpoint, bitcoin and ethereum should be the biggest investments in your crypto portfolio. But you need exposure to a much broader and more diverse set of coins to take advantage of the full upside of the crypto markets. Bear markets are a good time to diversify the portfolio and increase exposure to different crypto sectors.
The coin I’m recommending today takes into account one additional factor — traction. Traction is typically a critical factor in startup investing. And when I invest (or suggest startup investments), I always take traction into account.
But investing in small cap cryptos often means investing in projects before there’s significant traction. Investing early in small cap coins means you’re betting on the technology, use case and team. These projects are so important that they should grow significantly over time, even if current market conditions drive the price down. That’s why I recommended Stargate Finance last month. It hasn’t been fun to watch STG’s price go down since then. But it’s a brand-new coin that launched in March — just before the market crashed. I still believe in the long-term value of the coin. So I’m not worried about it right now.
In a bear market, though, traction takes some risk off the table. If a project has attracted a significant number of users, the longer-term value is much clearer. And that’s certainly the case with Aave.
Aave is a decentralized finance (DeFi) coin. People can lend a variety of crypto to Aave’s liquidity pools and receive interest. And people can borrow against the collateral they’ve put up.
Aave is an incredibly popular DeFi protocol. According to DeFi Pulse, Aave has $8.2 billion in Total Value Locked (TVL). That’s the second-most TVL in the DeFi ecosystem.
TVL is a critical metric in DeFi — and much more insightful than total market cap. Market cap reflects investments from both passive and active users. That means speculative investments can drive the value of a DeFi token up. But it doesn’t mean more people are using it.
TVL represents the total value of the assets that have been staked to a network or are in a network’s smart contracts. By staking crypto, people are actually using the system. So TVL is a much more accurate representation of how much a DeFi token or network is actually being used.
DeFi has been growing in importance — and value — over the past few years. As the crypto ecosystem grows — and as more people look outside the traditional banking system to generate income — the DeFi ecosystem will both mature and become even larger. Aave is a good entry point into the space.
As of this writing, Aave is trading for about $87. It was trading around $179 about a month ago. And it was trading around $260 to start the year. When the market regains its legs, I believe Aave can recover much of that value — and possibly hit new highs. So $87 represents a decent price to add Aave to the portfolio.
If you want to wait to see if Aave drops lower, that’s perfectly fine. The way the markets are going, it could definitely drop lower. But regardless of when you decide to add Aave to your portfolio, make sure you dollar cost average into your position. It’s a sensible move in a bear market.
You should be able to acquire Aave on most major exchanges.