Un-BEAR-a-BULL: Building a Strategy During the Bear (Basics)

This image will make sense at the end… I think…

This market is unBEARaBULL. How do you un-BEAR a BULL?

Alright enough. I can already tell I’ll regret that cheesy wordplay when Re-reading this later. Once you’re done questioning my intelligence and subsequently your intelligence for taking the time to read it, I’ll get into what prompted that ridiculous thought.

As much as I don’t want to relegate the rise and evolution of blockchain technology to broad statements of animal temperaments, there is something there. I am “bullish” (degen: “boooolish”) or optimistic on the blockchain, DeFi, web3, etc. I believe it offers advantages, value, and benefits that will drive its adoption. My long-term view is that we are early and will continue to see lots of exciting activity and growth over the coming years. As optimistic as I am though, we can’t ignore cycles or that there will be periods of negative sentiment. Also known as Bearishness. Bears can be spurred on by many factors both inside and outside the web3 space. Acknowledging downturns will happen from time to time helps us visualize a well-rounded strategy. You certainly can’t plan for everything and there will be plenty of randomness that attributes to missed upswings or surprise down turns. If we accept and expect this though it gives us a chance to step back from the wild, short term, minute to minute token flipping, and gain a long-term strategy.

So why do I say stupid things like, “the market is unBEARaBULL” & “How to un-BEAR-a-BULL”?

Lord help me redeem myself here 🙏 🤞

Now I’m oversimplifying a bit here by suggesting we can remove or avoid the bear entirely from our bullish outlook. We can’t eliminate or completely avoid it but rather take it into account when strategizing. My Strategy is based on the thought that I am long term optimistic or bullish, but I will of course encounter bears along the way. If I am focused on the long term and overcoming any negative sentiments, I am trying to “un-BEAR my BULL-ish strategy”. My opinion is that the trick to this crazy space/market is building around that optimism in a way to ride out and survive the negative periods or setbacks. (Also, at times this space gets so chaotic it’s fair to say it feels unbearable)

My thoughts on carefully building around my optimism is to look at who and what are offering value or advantage that doesn’t currently exist in mainstream or offers an essential “building block” in web3. I also like to try and get an idea of who are the best builders. Let’s try using some old but basic tools here like Porter’s 5 forces or SWOT analysis.

In a loose adaptation of the 5 forces analysis, we might consider the following. (Try to apply these to web3 or a category that Protocol XYZ is looking to enter rather than strictly Protocol XYZ. We want to analyze the environment not just the protocol. Think “lay of the land”)

1. Competition — what are other Protocols, DAO’s, dApps, etc. doing in web3? If you can narrow the category further to something like DeFi, GameFi, or NFT’s the better. Essentially what is Protocol XYZ doing? What’s their mission and focus? Who else has the same goal or approach and how many competitors are there?
2. New Entrants — How easy is it to get into Protocol XYZ’s category and start competing? We have witnessed some of this 2nd factor with forks and vampire attacks. This is one of the challenges with Open Source (not arguing against it but important to acknowledge)
3. Suppliers — this can be a bit trickier as we look across the web3 space but let’s try some examples. What chain/network is Protocol XYZ on and what challenges/advantages might that present? Is there reliance on another protocol like OpenSea or The Graph and how much of an impact could that have?
4. Customers — How many customers does the category have, how large an influence do they hold, are there several large customers or many independent ones? This and the next force remind me of the competition across protocols for liquidity providers. The very challenge that stirred DeFi 2.0 builders.
5. Alternates/Substitutes — This has some small overlap with the first 2 forces but a much wider scope. The question we need to answer is what alternate options or substitutes are there in this/to this category.

Now you can do this analysis today and let’s be honest 2 months from now it will feel like it is largely outdated. That being said it doesn’t take much time and helps us picture a potential future. Remember to apply this to the entire category to find best where Protocol XYZ does and does not fit, as opposed to only applying it to the protocol itself. We want a wide scope.

We could also do a simple SWOT analysis on our subject protocol. This is where we narrow our scope and focus on Protocol XYZ. (Once you build out your lists, it’s always worth questioning them. I.e., “Is this threat really a threat? Is this strength sustainable or could it contain a threat?” Questioning your analysis could reveal that some aspects have a 2-sided nature or could easily be changed by the outside environment.)

• Strengths
• Weaknesses
• Opportunities
• Threats

These tools are simple and won’t give you all the info you need but they can help build the picture. This helps channel a long-term outlook rather than a quick, short-term flip.

In the end though we really just want to know is the subject driving value. Is there future potential? Is it just a fork or saddle capitalizing on another’s success? if this is the case, does it have staying power or the drive and potential to surpass? (Forks happen all the time but what happens next?)

And if you want a more TLDR version of this…

I’ll provide the words of a Giga-Chad elder, “Who is your Daddy and what does he do?”

I say it a lot when writing or talking about web3 and I will continue saying it. This is the Wild West. We are on a new frontier and under the assumption that the future is being built here. Even the best, most carefully laid strategy may fall victim to exploit, hack, or other surprise but the probability for success can be improved as opposed to just “apeing” in randomly. Fair to say it’s all a gamble but keep in mind there are different levels and types of gamblers. 😉

This of course is not financial advice. The fact that I chose to publish something with the puns above should already put my judgement in question. I’m a fan of this space and like to share my thoughts and discuss. I am degen.