How do Startups Survive During Crypto Winters?
Welcome to the first edition of The Block Party: No Math Required!
Why did the crypto startup sink during the bear market? Not enough lifeboats... or HODLing! Like the Titanic, weathering a bear market in the crypto space can be rough, but these startups are determined to stay afloat. In this newsletter, we'll dive into the strategies they're using to keep their heads above water.
Okay… so what the heck does a crypto winter mean? Are all cryptocurrencies on some groundbreaking, unheard-of, limited-time-only blockbuster sale? No…Well yes, kind of. The catch is the sale runs for months, sometimes years on end 🥲.
Crypto Winter refers to when the cryptocurrency market is experiencing a downturn. For some context let’s follow Bitcoin’s (the largest cryptocurrency by market cap) price action. On December 17th, 2017 Bitcoin saw a high of $20,089, 51 days later Bitcoin was $6,048. The price fluctuated around $3-7k halfway up until 2019. The period between the low, up until mid-2019, can be referred to as a crypto winter, aka, a bear market.
Crypto winters suck. It’s a time period where economists love to sh!t on crypto. People make fun of me for losing my life savings in Dogecoin and the overall market is filled with fear, uncertainty, and doubt. But most people only really bat an eye at crumbling prices, never the actual people on the front lines. Sure, everyday investors are hurt by it, your mom is probably asking you “what happen to going to the moon?” when you borrowed $1000 from her and put it into MoonCoin. The reality is that when we have crypto winters, the people building on top of blockchain networks (technology powering cryptocurrencies) face the most criticism.
Let’s take a moment to learn from someone on the front lines. I interviewed Tony Plasencia, co-founder of Underdog Protocol, a web3 protocol that allows developers and communities to effortlessly connect their off-chain workflows with the power of NFTs on Solana with Underdog API.
What the hell is a web3 protocol that allows developers and communities to effortlessly connect their off-chain workflows with the power of NFTs on Solana with Underdog API?
Do you know what a computer program is? It's like a set of instructions that tells a computer what to do. And sometimes, there are different computer programs that need to talk to each other and share information. That's where an API comes in - it helps these programs talk to each other.
Now, let's talk about off-chain workflows. This is like a fancy way of saying that there are certain things that happen outside of a computer program. For example, let's say you have a toy store. You might have a computer program that keeps track of how many toys you sell and how much money you make, but there are other things that happen in your toy store that the computer program doesn't know about - like when a customer comes in and asks for help finding a certain toy.
So, off-chain workflows are like the things that happen in your toy store that the computer program doesn't know about. And sometimes, you want to connect these off-chain workflows with your computer program so that everything is working together seamlessly.
That's where NFTs come in. NFTs stand for "Non-Fungible Tokens" which is a fancy way of saying that each one is unique and special. It's like a digital certificate that proves you own something special - like a rare toy or a piece of artwork.
And Solana is a special type of computer system that's really good at handling NFTs. It's like a special toy box that keeps your special toys safe and organized.
So, when we say "connect their off-chain workflows with the power of NFTs on Solana with an API," what we mean is that we want to connect all of these different things together. We want to make it easy for different computer programs to talk to each other and share information. We want to make sure that everything is working together seamlessly - like all of the different toys in your toy store. And we want to use NFTs and Solana to ensure everything is safe and organized, just like your toy box at home.
Now Tony to share with us his experience sailing his boat (Underdog protocol) through a tsunami (crypto winter).
We asked Tony what his thought process was when the markets started to hit the fan.
What was your outlook on the company when you were buckling down and realizing you had to cut costs?
Where were you as a company when the crypto winter started?
Could you summarize the struggles you came across?
We berated Tony with questions on how he solved/ worked through the pitstops his company was facing during the crypto winter and came up with an analogy to explain it all.
So, there was a startup that made delicious honey, but one day, a group of bears came and started eating all the honey. The startup was in trouble because it wasn't making enough money and customers were going away.
But, the startup didn't give up! They came up with a plan to solve their problems. First, they decided to find new customers by offering free samples to people who hadn't tried their honey before. This helped them attract more customers and grow their business even during the bear market.
Second, they decided to manage their money carefully by cutting unnecessary expenses and investing in things that would help them make more honey in the long run. They also made sure to save some of their profits for the future in case the bear market continued for a while.
Lastly, they decided to focus on making the best honey they could, even if it meant experimenting with new flavors or changing their production methods. They knew that if they could make the best honey possible, people would keep coming back even during the bear market.
So, even though the bears were trying to stop them, the startup team found ways to keep their business going and even thrive during tough times. And just like that startup, a crypto startup in a bear market can also find ways to attract new customers, manage their money carefully, and focus on making their product better.
We snuck into Tony’s office in San Fransisco and got a first look at the situation there
So what does this mean for investors, meme-coin enthusiasts, crypto startup founders, and you?
Well, we can all come to the consensus that none of us are fans of crypto bear markets but regardless- they will come and go. The only thing we can control is how we respond. If you’re an investor, meme-coin enthusiast, or crypto startup founder, I’ve got some final advice for you. BTW I’m not a financial advisor so do not take this as financial advice, instead, consider it as the opinion of a business major who doesn’t even have his degree, let alone a CFA.
Investors: Look back at the original reason you invested into crypto- attack your thesis from all angles and conclude- market outlook aside, is this something that still has potential value to change the way technology works 5-10-50 years from now? If your answer is yes, forget about what the charts or Elon Musk has to say and stick to your gut.
Meme-coin enthusiasts: All jokes aside, don't panic sell your meme coins just because the market is down. Remember, the value of meme coins is mostly based on hype and speculation, and not on any real use case. So, if you panic sell, you might end up losing a lot of money. On that same note- be prepared to lose all of your investment. The truth is it can go either way. In reality, you probably are already HODLing at a 90% loss so what more can you lose? JK! Ok, for real now- You might hit the lottery in the next bull market or you may be living on the side of the street next week, but I can’t tell you anything other than do your due diligence next time when making a speculative investment.
Crypto startup founders: Crypto winters can be extremely tough- I’m sure you know first hand but it’s important to put your fear, uncertainty, and doubt aside and keep building. Look around you- there are more people building now than ever, even during the bear market. So focus on your product, be strategic with spending, communicate with your investors, and stay positive! For every winter there is a spring, summer, and fall.
So, if you find yourself facing a crypto winter, don't panic - keep calm, HODL on, and keep building that boat! Or, you know, invest in a good parka and wait for spring.
That’s all for the first edition of The Block Party: No Math Required!
See you next week nerd