Surviving the Crypto Winter: How to Make Money by Making Data-Driven Decisions

Olga Voykina, the Co-founder and CPO of the advanced analytics ecosystem AnalytEx

After the last Bitcoin BTC/USD halving in May 2020, bulls have officially taken over the cryptocurrency space.

In 2020 alone, BTC and ETH increased 303% and 463%, respectively, while the digital asset market capitalization surged 298% from January 1's $191.5 billion to $762 billion by December 31. This rapid growth continued throughout 2021, with cryptocurrencies reaching a new all-time high at a nearly $3 trillion valuation in November.

With coins like SOL/USD (9,150%), LUNA/USD (13,000%), and AVAX/USD (2,880%) recording astonishing year-to-date (YTD) gains last year, it's relatively easy to generate decent profits when crypto prices are skyrocketing. However, bull markets don't last forever, and there are periods of stagnation or decline when it's more challenging to make money by simply investing in digital assets.

One of the worst periods for investors is during a "crypto winter." Mostly taking place after digital assets reach new highs, it's a longer period in which bears take charge and prices keep falling lower and lower.

As the market capitalization has been down 40% since November 2021's all-time high and asset prices are highly volatile, it makes many of us think about the onset of a crypto winter.

The good news is that, while the easiest ways won't work or will become less effective, you can still earn good revenue via digital assets by turning to alternative investment options during this period.

Yield Farming: DeFi's Favorite Earning Activity Comes in Handy During a Crypto Winter

One of the most popular ways to earn money in the decentralized finance sector is via yield farming.

Simply put, this method involves leveraging different strategies – which can range from something as simple as funding liquidity pools and staking liquidity provider (LP) tokens to super complex tactics executed across numerous protocols – on DeFi platforms to make more money with your crypto holdings.

What’s more important is that farming brings you a passive income stream. By supplying coins in a pool and staking your LP tokens, you are entitled to receive token rewards and a share of the pool’s trading fees.

For that reason, it is an excellent tool for surviving a crypto winter while making decent profits, especially if you use stablecoin farms (as they minimize the risks and negative impacts of volatility). 

Data-Driven Insights to Boost Yield Farming ROI

Despite reports on social media and crypto forums claiming how easy it is to make a 5,000% annual percentage yield (APY) with a new DeFi protocol, you have to limit your risks to maximize your profits and avoid losing money on strategies that simply don't work.

An important aspect of achieving success here is to employ analytical data. By tracking popular farms, tokens, and protocols, you will know what is happening across the rapidly-evolving DeFi market, and you will be able to act in time to execute the best strategies that will make you good money.

Let's see a real-life scenario to better understand this. Based on the data from our analytical platform, we can clearly see that 480 new farms were launched in the past month – 313 on Binance Smart Chain, 140 on Polygon, 11 on Ethereum, 16 on Avalanche, and one on xDai.

However, our data shows that only 20% of these new farms have gained enough TVL (total value locked) to develop, thus, becoming large enough to be interesting for investors, who can leverage them to earn between 10% and 100% APYs.

Despite featuring high APYs, the rest 80% are simply not a good fit for investors. The StrikeX farm is an excellent example, which was created two months ago. Despite offering a total APY of 36,362% in three high-yield pools, only one pool has enough TVL to be considered for investment, and the APY of this pool is only 10,65%. 

Analytical Data Is Crucial to Avoid DeFi Fraud

As DeFi is a ludicrous sector in crypto that develops fast and remains outside the reach of regulators (at least for now), it is a prime target for cybercriminals.

According to a Chainalysis report, victims lost $7.8 billion of cryptocurrency in 2021 due to fraud, from which $2.8 billion came from rug pulls. At the same time, our data shows that 20% of new farms in DeFi are fraudulent.

For these reasons, it's crucial for investors to be aware of the risks of yield farming and continuously monitor DeFi protocols to avoid falling victim to fraud.

Fortunately, analytical data comes in handy in this case as well. By looking at information like a pool's TVL compared to its APY as well as the farm's smart contract, social networks, and website, you can easily identify whether you are dealing with a fraudulent or a legitimate project, ensuring that your investment remains safe.

If you take a look at the above screenshot from our data platform, you can clearly see that Axiedoge features very high APYs (up to 766%) with a very low total TVL of $2000 for all pools combined. What's more, the project has no updates on twitter and operates an inactive Telegram channel where spam is the only content you can find.

Based on all this data, we can safely conclude that Axiedoge is either a fraudulent or a dead project, which farmers should avoid (Not financial Advice).

Surviving the Crypto Winter With Data-Driven Alternative Investments

While a crypto winter is imminent, there is absolutely no need to panic, as investors can still make decent gains during a downtrending market with alternative investment options like yield farming.

However, today, new DeFi and NFTs projects are emerging too fast for investors to track them individually.

For that reason, users can leverage advanced analytical solutions and fresh industry information to make data-driven decisions, which will allow them to identify the best investment opportunities on the market and filter out dead, mediocre, and fraudulent projects.