5 reasons to be excited for the bear market

Lessons learned from the 2018-20 bear
Jan 24, 20226 min read

Dear Bankless Nation

Many of my friends got into crypto in 2021, and all of them just want prices to go up… I mean, of course, they do!

Who wouldn’t want their portfolio to increase?

So, they’re always shocked when I tell them: “You want a bear market”.

If you want to be fantastically wealthy, then you want a bear market to happen. It’s completely counter-intuitive, but it’s the truth.

If you want to make a quick buck, then sure, you can gamble on which memecoins will moon. But if you’re here to build generational wealth, then you’re not looking to cash out in 2022 or 2023. You’re looking to build your wealth well into the future.

Let me repeat that. Generational wealth is made in bear markets.

And it’s not just about financial capital, either. There are more forms of wealth than just capital. If you play the bear market right, not only will you come out the other side with a much stronger portfolio, but you can also achieve so much more, like long-term friendships, meaning, and purpose.

So let’s unpack all of this.

🤔 In my view, there is no formal definition of a bear market. Of course, those looking for clarity may benchmark against “… prices fall 20% or more from recent highs…” But, to me, bear markets are a reflection of investor sentiment.

In other words, instead of trying to categorize recent price action as a bear market or not, ask yourself, does this feel like a bear market? If yes, then act accordingly. If not, then act accordingly.

Here are 5 reasons to be excited about a bear market:

1. Long Term Wealth

One of the things I hated about the bull market is that buying crypto-assets always felt so fruitless compared to the 2018-20 bear market that I was used to.

  • $1,000 in 2018 was 5-10 ETH or 0.2-0.3 BTC.
  • $1,000 in 2021 was 0.2 ETH or 0.015 BTC

Moving the needle in portfolio size was hard. In bear markets, it’s much easier to increase your stack. It’s extremely satisfying to be able dollar cost average your 9-5 salary into a larger allocation of assets you have a conviction on.

And that’s really where long-term wealth comes from: Conviction.

Bear markets are when the settlers leave for greener pasture. In bull markets, your buys are shoulder-to-shoulder with the tourists and fair-weather fans. In bears, all those unconvicted bidders are gone, and you get a much better selection of your buy prices.

Most people who spend time in crypto long enough understand that it’s going to take over the world. Time is on our side, and the longer we bear the bear market, the longer we have favorable prices to slurp up before the world once again decides its time to pay attention to crypto.

Bull markets are when the entire world remembers that this crypto thing exists, and reprices the industry based on the progress it’s made over the previous bear. Bear markets are when the rest of the world gets bored with crypto and moves on. If you stay around while the rest of the world moves on, that’s your opportunity.

That’s where you get to buy at prices that won’t be seen again. The people that have built fabulous wealth didn’t do it during the 2017 ICO craze. They did it by regularly buying between 2018 and 2020 when ETH was under $500 a pop.

If you’ve already settled in for the long haul, then the bear market is how you get rewarded for making that choice.

2. Long Term Relationships

Financial capital is just one flavor of capital out there.

Social Capital was one of the best assets that I was unknowingly accruing throughout the 2018-2020 bear.

Friends. Homies. Allies. Partners.

Bear markets are when the campfire cools off, and we all have to huddle up to keep warm. We get shoulder-to-shoulder and find our bear-market homies to weather the winter with.

If you’re like me, and you can’t stop thinking or talking about crypto, this is where you find like-minded people who have similar levels of conviction and similar industry-specific interests as you.

I made lifelong friends in the 2018-20 bear market. I’ve gone to weddings and traveled across the globe to spend IRL time with the people I met in Discord or on Twitter.

How to take advantage of this:

  • Learn how to be good at Twitter (it’s a skill)
  • Consistently spend time in Discord channels. Get a second monitor to have Discord always up (alpha: make it vertical).
  • When you find someone that you frequently align and agree with, send that stranger a DM and say hi.

This is quite literally how Ryan and I met, and how Bankless started.

We still haven’t met. ¯\_(ツ)_/¯

3. Signal > Noise (Alpha)

People think bear markets are ‘tough times’. In terms of financial capital, yes of course. But in terms of everything else, bear markets are crypto on easy mode.

By this, I mean the ratio of signal to noise is so much higher in bears.

In bull markets, everything is clamoring you for your attention, which incites your FOMO. In bull markets, lots of projects are made viable by simply capturing attention, rather than fundamentals. In bear markets, those projects don’t work anymore, and the attention-based projects are the first to get washed out.

Bear markets are quiet markets, and as noise exits the industry, it makes room for real signals to come to dominate the industry.

Bull markets = noise dominant
Bear markets = signal dominant

This is the part of the market cycle that simply just exudes alpha, and the best part about it is that it’s not confusing when it comes to you. It’s just simply easier to identify real alpha, and also have more conviction in that judgment.

For example, DeFi was created in 2018/19 but it wasn’t fairly priced until DeFi summer 2020. Everyone knows that the DeFi alpha would eventually come, and the convicted had ample time to accumulate during this period.

P.S. If you’re subbed to Bankless, we’ll deliver that alpha for you 👀

4. Building

It’s easier to build during bear markets.

The silence of a bear allows for concentration and long-term thinking. Rather than having to keep up with the weekly trends, bear market entrepreneurs are able to set the foundations for the next years and decades. The absence of pumping dog tokens and new NFT PFPs means that builders are able to refocus on fundamentals and what’s real.

This is cyclical of course; once these bear-market builders produce their high-value products, it sets off a new wave of bull market froth and ends the silence as the world becomes abuzz with all the cool new things the bear market produced.

For founders, it’s much easier to find quality talent in bear markets. You don’t have to worry about whether they’re here for the long-term, or here for the trend. Talent tends to be hungrier and grittier than during bull markets.

The products that are built in bear-markets are by definition bear-market proof.

If it can be built during a bear, it will thrive during a bull.

5. Crypto Gets Stronger

Crypto is anti-fragile.

What doesn’t kill us makes us stronger, and at this point in crypto’s lifespan, there’s no way to kill it. We’ve already won; it’s just a matter of waiting for the rest of the world to realize it.

No crypto isn’t dead. The only thing that’s dead is the conviction of a bunch of tourists. The 2020-21 era brought in millions of new crypto users, and the ‘22 bear will claim a very strong portion of those as long-term settlers.

Because of the last two years, crypto has more believers than ever before. We have more developers than ever. We have our own native media organizations like Bankless and The Defiant. We have our own culture and our own slang (gm, wagmi, frens).

We own our own vibes, and our shared vibes are going to make sure that the bear market campfire keeps everyone who chooses to stay around warm enough to get through the winter.

I can’t wait to see what our industry looks like on the other side of this!

So, what do you want to do during the bear market?

What friends will you make?

What will you help build?

What skills will you develop?

What reasons do you have to stay?

I look forward to building with you all throughout the bear (if it really is a bear). 😉

- David

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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