How to Invest in a Crypto Bear Market, Tips and Advice From VCs

  • Haseeb Qureshi is the managing partner at crypto fund DragonFly Capital.
  • He and other crypto VCs explain how investors can make the most of the current downturn.
  • The crypto market cap sits at $1.23 trillion, according to Messari.

The number of global crypto users grew by 178% to nearly 300 million people last year, per a report from

Signals of adoption, in part, played into this incline. Morgan Stanley offering wealthy clients bitcoin exposure, El Salvador declaring the largest crypto by market cap a legal tender, the resurgence of nonfungible tokens (NFTs), and new use cases for blockchain integration like gaming all triggered a flood of new investors.

But market sentiment has turned bearish this year, due in part to the collapse of LUNA and UST. Also, amid the Federal Reserve’s rate hikes to soften inflation, bitcoin and ethereum are trading similarly to risky tech stocks.

Bitcoin wasn’t spared even though its proponents had triumphed the token as a safe haven from macro influences and as an inflation hedge. Bitcoin and ethereum declined 30.37% and 37.54% in the past month, per Messari. Altcoins solana and avalanche are down 81.17% and 80.75% from their all-time highs. Crypto markets lost $600 billion over the past month, according to CoinMarketCap.

Investors who’ve jumped into crypto within the last two years may not be accustomed with its at-times volatile performance. This is nothing new for long-time industry participants, however. In 2020, bitcoin slashed 50% of its value to $4,000 in two days on pandemic fears. But 13 months later, it had climbed up to $64,000.

“This is what you expect in crypto,” Garrette David, a cofounder of Atomic Form, a Web3 startup, previously told Insider. “Sometimes you’re up 100x, and sometimes you get wrecked.”

Still, executives predict that user adoption will only continue. Within the next decade, more than one billion people will have used or will be using cryptocurrency, Coinbase CEO Brian Armstrong said.

“My guess is that in 10 to 20 years, we’ll see a substantial portion of GDP happening in the crypto economy,” Armstrong said, comparing the market’s growth to the early days of the internet.

Price action doesn’t determine long-term potential, VCs say

Price action doesn’t necessarily reflect the space’s long-term growth, according to three crypto VCs. So what should a less-experienced investor do in a

bear market

? VCs from investment firms Dragonfly Capital, Volt Capital, and Archetype shared their insights on the matter.

Users should take the time to read white papers, according to Dragonfly Capital Managing Partner Haseeb Qureshi. For the unititated, a white paper is a document released by developers that details the purpose and technology behind its offerings. One of the most cited is Ethereum’s, which was published in 2014 by cofounder Vitalik Buterin.

“The great thing about bear markets is that you can sleep at night,” Qureshi said on a panel at the Permissionless conference Tuesday. “It’s not as crazy and you don’t get it as much FOMO. You can actually read the documentation and white papers.”

Dragonfly recently closed its third crypto fund at $650 million, TechCrunch reported. The fund’s limited partners include Sequoia China, Tiger Global, KKR, Invesco, and others.

Soona Ahmaz, a general partner at Volt Capital, recommends users build their reputations and learn more about the space when markets are in a funk.

“You’re getting a front-row seat to see what actually works versus what doesn’t,” Ahmaz said at the conference.

Last year, Volt announced a $10 million fund for early-stage crypto startups and has made equity plays in blockchain research firm Nansen.

New investors should do more research and immerse themselves even further into crypto during a bear market, Ash Egan, the founder at Archetype, told Insider. In April, the firm announced plans to close a $150 million fund.

“I think there’s been a lot of tourists throwing capital out there. It takes years to build something impactful and so I think you have to be in it 24/7,” Egan said. “And I think you just gotta dig a few layers deeper.”