RF Capital
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RF Capital

How to Gauge a Dip

For those that have been around a while, 50–60 percent discounts are eerily reminiscent of the BTC flash crash from March 2020. You can look back in the history of Bitcoin to find many instances of these sales.

You may also find that in hindsight, these were incredible buying opportunities that resulted in long term gains. Most recently, people that bought the March 2020 flash crash are still up 10x on their investment which really puts things into perspective.

During these times, we use a simple checklist to evaluate the fundamentals around our investments:

Have the fundamentals of the underlying technology changed?

During said correction, there could have been a sharp decrease in the overall user base of the tech.

Maybe there was a large regulatory event in a major country to directly combat their long term adoption, quite possibly there could be issues with the team itself where founding members are starting to switch to other projects.

Something could happen to the supply of the asset where all of a sudden there is an increase in minting of new coins or centralized sources deciding to cash out all at once.

Did the technology hold up during and after the crash?

Take a look at the Twitter of the asset in question as well as of their online community. There you should find data from multiple sources regarding the response of the asset to a sharp decline in price.

Did the tokenomics mechanisms hold up or maybe a large hack? A contract could have been exploited to mint new tokens by bad actors.

These pull backs in the market are an excellent stress test for most protocols and allows us to get an understanding of how well their theory holds up in real life.

Are the teams continuing to innovate?

It can tell a whole lot about a protocol if during a major market event, you begin to see major contributing members of the team start to sell off their positions and part ways with the company.

Sometimes what can happen is the main developers will seek to start their own blockchain project with the innovations that were passed on by the old team at their previous project. We have seen it time and time again.

As long as the team stays intact, continues to push out updates, products, and mechanisms that are contributing to the long term growth of the protocol or underlying tech, systems are still a go.

The Bottom Line:

If the answers to these simple questions come out to be in favor for the asset in question, these corrections are just discounts that help maximize your strategy for sustained success!

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Jared Gabaldon

Jared Gabaldon

Principal for R.F. Capital - Decentralized Finance Fund