Crypto projects around the world are asking the same question — given crypto’s volatility and seasonality, when is the right time to launch a new token?
Having facilitated more than 40 token sales over the past 5 years, we believe that launching during a bear market presents unique advantages and may actually de-risk a token launch.
During bull markets, valuations get ahead of themselves and any missteps can result in extreme punishment on the price and the project’s long term growth. In a bear market, however, valuations and token sale terms tend to be more realistically pegged to the value of the network.
Let’s dive in.
1. What the bear market means for token sales
When it comes to token sales, bear market cycles have a number of implications on both the project launching the token and the community purchasing the tokens.
For the community, a bear market means less liquidity (or dry powder) and lower risk tolerance. In a bear market, potential community members have less capital to deploy. With less available capital, potential community members are more selective with deployment and evaluate emerging protocols with higher skepticism and selectivity. But the projects they do decide to participate in, they truly believe in.
For protocols, bear markets are a healthy forcing function for proving utility, product-market fit, and building a strong and engaged community of early adopters. Without the noise of a speculative bull cycle, emerging protocol teams are better positioned (and forced) to focus on defining utility not only for the product, but also for their new token. This promotes long-term durability and strength for the protocol that is underpinned by clear use cases, product-market fit, and a strong desire to build an engaged community.
2. Benefits of launching a new token in a bear market
Now that we’ve covered how bear market conditions can impact project teams and communities, what exactly are the benefits of launching in crypto winter?
- Broader distribution — As you’ll see below in a few case examples, protocol teams can still execute a successful public sale in this market if they meet consumers where they want to be met. Ultimately, it’s discounted retail rounds, solid tokenomics, and aligned incentives that build community, not market-wide sentiment. Sale terms (valuation, price, lockup, etc.) need to be priced to attract those quality users to emerging projects. What does this mean? Lower entry points → more users willing to spend → broader token distribution.
- Build stronger communities — Allowing retail to accumulate tokens at low prices can do wonders for building strong communities versus selling to users that sell at the first opportunity. Positioning the public sale as a “community round” at a lower valuation relative to a bull cycle launch may help reach a broader community and build enduring goodwill with token holders. The real value of a well-executed token sale is the strong community you build, not the fundraising. Quality users do their homework and understand long-term value propositions. When the speculators have largely been washed out, what remains are the higher quality contributors that are truly committed to the project's success.
- De-risks the launch — During bull markets, valuations run hot and are priced to perfection, leaving very little room for error despite the emerging state of the protocol. If a protocol is priced to perfection and fails to resonate, or if the market turns and severely damages token price and long term prospects, valuations have only one direction to go - down. If a protocol launches during a bear market, valuations are not priced to perfection and the community has a meaningful opportunity to generate significant network value.
3. Three projects that launched in crypto winter and now dominate market cap rankings
- Date: March 24, 2020
- Market Conditions: Less than two weeks after the Black Thursday crypto crash on March 12, with COVID-19 spreading for the first time across the US
- Sale Details: The Solana team sold 8M SOL tokens at a clearing price of $0.22 (a down round for them at the time), amounting to $1.8M worth of tokens sold to roughly 400 intrepid buyers on CoinList
- Performance Since: The price of SOL hit $260 at the peak of the bull market, up more than 1,180x from its public sale
- Date: August 12, 2020
- Market Conditions: Days after more than $1 billion of bitcoin and crypto positions were liquidated across various exchanges due to a flash crash that sent BTC plummeting to $11k
- Sale Details: The Near Protocol team sold more than 100 million NEAR tokens at around $0.34, amounting to $30M tokens sold to about 1,500 purchasers on CoinList
- Performance Since: The price of NEAR hit a high of $20 this January, up more than 58x from the community sale
- Date: October 2, 2020
- Market Conditions: BTC was trading at $10k and ETH was trading at $350
- Sale Details: The Dapper Labs team successfully closed their public sale, having sold $18M worth of tokens to 13,000 purchasers across both the community sale and auction on CoinList. The closing price for FLOW during the auction was $0.38
- Performance Since: In 2021, the price of FLOW hit $49, up more than 102x from its token sale.
Did these projects master timing of their token sales? Hardly. Despite launching in a terrible market in the dead of crypto winter, these projects set themselves up for immense success by launching tokens in down markets.
4. Lessons for the market
For crypto project teams debating when to launch a token, the lessons are as follows:
- Long-term value is far more important than public sale price. Token price will follow hard work and product-market fit. Don’t try to time the market, focus on execution.
- The quality of community you get from a public sale matters. You want token holders that actively use the network’s token and contribute to the protocol’s growth initiatives through staking, trading, validating, and governance — not speculators that will dump the token at the first opportunity.
- Solid fundamentals, reasonable sale terms, and willingness to take less money in exchange for broader and more high quality distribution sells. Meet users where they want to be met, and you’ll be rewarded.
There is a golden opportunity for protocols with product-market fit to separate themselves from the pack and set themselves up for future success by launching their token in the bear market. Expect to see less noise, more signal, and good quality tokens with reasonable valuations.
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