As expected, the crypto markets tumbled this week (and some last week as well). The timing of the downswings are fairly predictable now — whenever new inflation data or interest rate hikes hit. The bad economic news triggers a sell-off in the equity markets. And because the crypto markets are closely correlated with the stock markets (especially tech stocks) right now, crypto prices sink right along with stock prices.
Inflation is still out of control. The Fed understands that. That’s why it raised interest rates by 75 basis points. The Fed is expected to raise rates again in July by another 50 to 75 basis points. And we should end the year with the benchmark rate landing around 3.4%. The rate after today’s hike ranges from 1.5% to 1.75%.
The Fed is desperate to get inflation under control. It’s hoping to end the year with inflation at 5.2%. The Fed is projecting that the inflation rate will drop to 2.6% by the end of 2023. That’s pretty close to its 2% inflation target for the economy.
Look for another round of bad economic news next month around July 13. That’s when the next release of the Consumer Price Index (which measures inflation) will happen. And we could see another sell-off in the July 26-27 time frame when the Fed increases rates again. Either way, I expect the downward pressure on crypto will continue until confidence in the economy improves. And the Celsius debacle could make things even worse.
The downward trend in the crypto markets does provide good buying opportunities for investors, though. During bear markets, the best projects put their heads down and build. The key to investing in a bear market is to identify those projects that will not only survive a prolonged bear market but also thrive well into the future.
I believe the coin I’m recommending to you today, PancakeSwap (CAKE), represents that type of opportunity. Before we dive into PancakeSwap’s details, let’s go over 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, you shouldn’t risk it.
- Focus on projects with strong use cases.
- Look for teams or communities that 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.
A Different Type of Diversification
There are different ways to think about diversification. The more traditional way to diversify — in both stocks and crypto — is to expand into different sectors. In stocks, that means investing in a broad variety of industries like tech, finance, energy, space, automotive, etc. In crypto, diversifying usually means investing in a wide variety of spaces like decentralized finance (DeFi), interoperability, smart contracts, utility coins, etc.
Another way to think about diversification is by network. For example, if you’ve invested in a lot of Ethereum-based projects, it makes sense to diversify into other crypto networks — especially because decentralized apps and smart contracts are not winner-take-all markets.
Investing in PancakeSwap is a chance to diversify your portfolio by bringing in a coin from a different network.
PancakeSwap is an extremely popular decentralized exchange and DeFi platform. It offers nine different products:
- Decentralized exchange (where investors can buy and sell cryptocurrencies)
- Staking
- Yield farming
- Initial farm offerings
- Perpetual trading
- NFT market
- NFT profiles
- Lottery
- Prediction market
If you’re interested in learning more about each of PancakeSwap’s products, this video by CoinMarketCap provides a good overview.
Here are the most important things investors need to know about PancakeSwap:
- PancakeSwap is built on the Binance Smart Chain Platform (also known as BNB Chain).
- CAKE (the token you would be investing in) is the engine that drives much of PancakeSwap’s product offerings.
PancakeSwap actually uses a few different tokens. The two most important are BEP20 (BNB Chain) tokens and CAKE. BEP20 tokens are used to pay transaction fees. CAKE is used for staking, yield farming, the lottery and almost everything else.
The BNB Chain tokens and ecosystem is the key to this investment opportunity. By investing in CAKE, you’re gaining exposure to the BNB Chain ecosystem. And every crypto investor needs exposure to the BNB Chain.
Binance is the world’s largest exchange by trading volume. Almost every coin worth trading is listed on Binance. And Binance is one of the most innovative forces in the industry.
Binance Coin (BNB) is the most valuable asset on BNB Chain. And PancakeSwap is the most popular app on BNB Chain, with 2.4 million users in the last 30 days and more than $3 billion in Total Value Locked (TVL). According to DefiLlama, a TVL aggregator for the DeFi world, PancakeSwap is the seventh most popular DeFi token.
(Quick reminder: TVL represents the total value of the assets that have been staked to a network or that 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 than market cap is. You can read a slightly longer explanation about TVL here.)
The founders of PancakeSwap are anonymous. That’s a bit problematic. Knowing the founders and understanding their motivations and dedication to the project is an important factor in any crypto investment. But in this instance, it’s not a deal breaker.
We still don’t know who created bitcoin. So it’s perfectly possible for an anonymous founder to build a crypto worth investing in. And, just as important, we do know who just gave PancakeSwap their seal of approval.
Binance’s venture arm, Binance Labs, invested in PancakeSwap earlier this month. That’s a strong signal that Binance believes PancakeSwap has a bright future. And that de-risks the project enough for it to be worth investing in.
The easiest way to buy CAKE is through KuCoin. If you’re going to invest in CAKE, make sure you dollar cost average into your position because the crypto markets are likely to go down in the future. Be prepared to hold onto this position until we see what crypto’s next bull run looks like. And remember, investing in crypto is risky. Don’t invest money you can’t afford to lose.
That said, I believe CAKE offers an attractive risk-reward ratio.