Sometimes — and especially in bear markets — investors need to be opportunistic. That’s why Andreessen Horowitz just launched a $4.5 billion fund for crypto projects.
A16z is going bargain hunting. And with good reason.
“Bear markets are often when the best opportunities come about, when people are actually able to focus on building technology rather than getting distracted by short-term price activity,” a16z general partner Arianna Simpson told CNBC.
Buying into good projects at low prices is what good investors are supposed to do. But psychologically, buying into a bear market is extremely difficult. Nobody wants to catch a falling knife. But bear markets yield bargains. So let’s go bargain shopping this month.
Rules of the Road
Investing in a bear market is tricky. It is likely that the market will go down further from here. But it’s important to be opportunistic. So if you have capital to invest — and you’re psychologically and emotionally willing to enter what promises to be a highly volatile market — here are some guidelines to follow.
- 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 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 your portfolio and increase exposure to different crypto sectors.
Making Ethereum Better
Last month, we recommended Ethereum competitor Solana to you. Today, we’re recommending Polygon (MATIC).
In crypto speak, Polygon is a layer 2 scaling solution for Ethereum. What that means in real terms is that Polygon helps Ethereum scale. It enables Ethereum — and Ethereum smart contracts and apps — to grow more quickly, process transactions more quickly and communicate with other blockchain networks. Another way to look at this is that Polygon helps Ethereum become the internet of the blockchain world.
The investment thesis behind investing in Polygon is fairly simple.
- Ethereum will remain a dominant player in the crypto space. About 60% of the total value locked (amount of crypto staked) in DeFi is ethereum. Depending on how you measure it, Ethereum is the top player in smart contracts with 36% to 43% market share. And while many Ethereum competitors have emerged, none have shown they are ready to unseat the king.
- Polygon will still be useful when Ethereum switches from proof of work (PoW) to proof of stake (PoS). Sometime in the near future, Ethereum will shift from the resource-intensive PoW protocol to the much less resource-intensive PoS protocol. While this will (in theory) make Ethereum much faster and more efficient, layer 2 solutions will still be important. They can help increase the amount of transactions that can be processed. They can make transaction processing times even faster. And they can give Ethereum the capability to work with other chains. That’s huge.
- Polygon is healthy and robust enough to both survive this downturn and stay ahead of competitors. Earlier this year, Polygon raised $450 million from venture capital firms. Sequoia Capital India was the lead investor. And it will invest some of that money into a fund to support Terra projects that want to migrate to Polygon. (Terra is the stablecoin that collapsed earlier this month.) Other notable investors in Polygon include billionaire Mark Cuban. Raising VC money and deploying it to bring in new projects and developers signals to me that Polygon is well positioned to survive the bear market.
There’s one last reason to consider investing in Polygon right now — timing.
Buying the (Big) Dip
Earlier this month, Polygon lost more than 50% of its value over a seven-day stretch, including an almost 45% drop between May 10 and May 12. Polygon began the year trading at about $2.50. It dropped as low as $0.54 earlier this month. And as of this writing, it’s trading for $0.61.
At that price, I believe Polygon is a bargain. It’s a healthy project built to improve Ethereum — the dominant player in smart contracts and decentralized apps. Ethereum isn’t going away. Neither is the need to improve it. And Polygon appears to have the resources, community and ambition to weather this bear market and come back strong. If you’re looking for bargains, Polygon has strong potential.
Remember, investing in crypto is risky. Investing in a crypto bear market carries even more risk. Less than 5% of your overall portfolio should be invested in crypto. That said, I believe Polygon provides an attractive risk-reward ratio.
How to Invest
You should be able to buy and trade Polygon (MATIC) on most major crypto exchanges, including Coinbase and Binance.US.