Where Does Fanaticism Go in a Bear Market?

If they can’t sell, they won’t sell.

The crypto space is becoming increasingly fractured as fanatic communities go all-in on their favorite coin. One can easily notice flashes of the nationalistic fervor once seen primarily in the Bitcoin Maxis; except now there are dozens of camps to which you can pledge allegiance.

Historically, it paid (quite literally) to be a part of the more open-minded group. Not counting the projects that went to zero, just about every alt-coin outperformed Bitcoin in the past five years. And if you were remotely sober in your investment thesis, you would have easily avoided the rug pulls.

While “strength of community” may have some obvious benefits in certain cases, it also has potential drawbacks. As excitement and pride grow without restraint internally, it approaches and passes the threshold to fanaticism. With it grows the viciousness of the in-group vs. out-group mentality. Potential newcomers and genuinely concerned actors within these communities are treated like outsiders, both stunting the internal problem-solving mechanisms of the group and simultaneously scaring off new investors.

The stench that these communities give off translates to increasing economic isolation: less money moving between each. Although not a lot of money moves out because of the dedication of the members, minimizing the outflow of economic energy is not a guarantee of price appreciation, only a probabilistic hedge against price depreciation.

If fanaticism is a hedge against sell pressure, aren’t all communities equal? There are volumes of books about market psychology, so I’m not going to list arbitrary reasons why someone might sell. Instead I’m going to ask, “Why not sell?”. That’s a much tougher question to answer and I think there are only two reasons:

A lot of people will fit into the first category in these types of communities, but if you are looking for safety, you need to assess the degree to which that sentiment can change. If it is equally likely to change in each community, then it is moot.

Perhaps the second category is more relevant. Are there communities that have anti-selling mechanisms built into them?

When everything is going up — as long as an asset isn’t being substantially outperformed by comparable assets — it’s easy to be a fanatic. But when price stagnates or declines, communities with these types of ethos fall apart.

The next big move in crypto is going to be during this upcoming bear market. A number of diasporas out of fanatic communities and into safer projects will result in a massive valuation increase for a small number of projects.

In anticipation of that re-allocation, the number one characteristic of resilient crypto assets is high Total Value Locked (TVL). Projects where tokens are locked for extended periods of time will be best suited to survive. Not all ‘locks’ are equal, but if you find the right type, you can guarantee a minimal amount of sell pressure.

You have to be careful when it comes to the term Total Value Locked. It is used by a lot of projects which don’t really ‘lock’ the coins at all. It defeats the purpose of the term if someone has no barrier to unlocking and selling. Projects with optimal locking mechanics have users specify a term length and penalize users for withdrawing from the term early.

Consider projects that fit the latter description if you are interested in hedging against a downturn in the crypto space.

There are enough suggestions and predictions in this space, so I’m intentionally leaving out my personally favorite projects. But I’d love to hear the projects you think best fit the above description and if you have your own take on recession-proof crypto assets.

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