Introduction

No one knows how low prices will drop or how long this crypto bear market will last. Time in the market is a better strategy than timing the market. This aphorism still applies. My approach is the following: (1) hold enough cash to survive the downturn without selling too much while prices are low, and (2) compound my yields to accelerate growth when the recovery happens.

My Background

Currently, I am a full-time crypto investor and independent research analyst. I quit my nine-to-five job as a data analyst in 2021. This is my second crypto boom-and-bust cycle. I became fascinated by blockchain technology when I discovered Ethereum in the fall of 2016.

However, when the market crashed in early 2018, my portfolio was devastated, and it did not recover until DeFi Summer in 2020. I recognized the DeFi opportunity, and I invested heavily. However, I missed out on the non-fungible token (NFT) boom of 2021 because I did not understand how to evaluate the value of NFTs.

The Time Value of Money

One of the most painful things about the 2018-2019 crypto winter was the lack of yield on my portfolio. Not only were prices about 90% below their 2017 peak but also, I wasn’t earning any yield on my holdings. For a long time, two-and-a-half years, I waited for prices to recover without a penny of yield that could have been compounded while the market was down.

Fortunately, since the 2017-18 cycle, we have come a long way on blockchain development. Back then, it was pure hype – just five developers and a white paper but no working products, in most cases.

Today, we have numerous layer-one blockchains and applications (i.e., working products). We can conduct decentralized exchanges (DEX) through Uniswap or Osmosis. Also, we can earn yield on crypto assets. The following are some yield-generating examples: (1) provide liquidity on a DEX, (2) rent our assets by staking on Ethereum via Lido, Cosmos, Avalanche, Solana, or Polkadot, (3) earn airdrops, or (4) conduct liquidity mining and earn rewards through early participation in various blockchains and applications.

Thus, it’s now possible to keep investing and compound yields during prolonged bear markets, when prices are low. The best part is you don’t need to invest any new money. The pain of a depressed market is alleviated by the yield, which compounds the quantity of digital assets for the duration of the bear market. The following graph illustrates the value of consistent investing and compounding over time:

When the market recovers, our holdings have increased in quantity over time through compounded yield. When prices rise, the subsequent increase in value will be turbo-charged as a result, based on simple math: price times quantity equals value.

Where to Find Quality Yield

The Ethereum Merge is coming up later this year. Current projections estimate that the merge will happen in late August unless bugs are discovered during testing between now and then. After the merge, Ethereum (ETH) will be a Proof-of-Stake chain offering a yield of about seven percent, according to the Bankless Podcast. Users with at least 32 ETH can run their own full node on the network and earn about seven percent. Alternatively, users with less than 32 ETH and those who don’t want the burden of maintaining node requirements can stake their ETH with a staking pool, such as Rocket Pool or Lido. Numerous applications, such as Convex Finance and Yearn Finance, also offer yield opportunities within the Ethereum ecosystem.

Aside from Ethereum, Cosmos (ATOM) is my other go-to blockchain for high-quality yields. Cosmos is already running as a Proof-of-Stake blockchain. Users can stake their ATOM and earn a variable yield, currently at 18.5 percent, using the Keplr wallet web app. Users who stake their ATOM often receive generous airdrops from new projects building on Cosmos.

Unlike Ethereum, Cosmos is an interconnected system of application-specific blockchains. Cosmos uses the Inter-Blockchain Communication (IBC) Protocol for interoperability between sovereign, layer-one, application-specific blockchains. I believe that Cosmos is the best alternative layer-one opportunity today. Other chains within Cosmos are available for staking on the Keplr web app, including Osmosis (Decentralized Exchange or DEX), Juno (smart-contract platform), and Stargaze (Non-Fungible Token or NFT Marketplace).

Risk Considerations

When looking for yield, remember that higher yield means higher risk, as a matter of principle. For example, Terra-Luna was in the top 20 by market capitalization at the time that it imploded. Terra offered high yields through staking, airdrops, and yield farming on various applications built on top of the Terra Protocol. Thus, do your own research, cross-check from multiple sources, and be skeptical when searching for yield on your portfolio.

Conclusion

In crypto winters (i.e., bear markets), time is your ally when you have a high yield on your portfolio. While prices are down, you are earning new assets from your existing assets, without putting any new money in. This will compound the quantity of your assets while you are waiting for the market to improve. When the next bull market arrives, the value of your portfolio will increase at an accelerated rate thanks to the compounded yields on your assets while prices were low.