Overall summary: Long-term bullish, short-term bearish.
From a long-term trend perspective, we remain optimistic about the future of the Crypto market, as both the business cycle and liquidity cycle continue to move in a positive direction. However, in the short term, due to liquidity adjustments, price volatility in Crypto may intensify.
Some may ask: Since we are optimistic in the long run, why adjust operations? This is because the Crypto market, being the market with the highest global risk preference, has extreme volatility. In a bear market, even BTC can fall by as much as 80%. To improve capital efficiency, I do not want my funds to be stuck for long periods, and I also hope to avoid unnecessary psychological strain—this is particularly important for improving returns.
Please remember one thing: excessive volatility is the enemy of returns!
One. December: The most important month of the year.
December will become the most important month for the Crypto market in 2024, and the outcome of operations will determine how much profit we can retain in the market this year.
By observing global liquidity, we believe that the market may experience significant fluctuations in the future. In this context, protecting the profits already earned this year and avoiding giving back returns has become a top priority.
Two. The overall direction of the Crypto market: risk preference and liquidity.
The core driving factors of the Crypto market can be summarized into two aspects: the risk preference of funds and the abundance of global liquidity.
The level of risk preference is usually determined by the business cycle. For example, when a company's EPS (earnings per share) rises, it means the company's profitability has improved, and with more funds available for investment after making money, market sentiment will also become more optimistic, even willing to expand through borrowing, which will also drive liquidity recovery.
From the data perspective, the current US PMI (Purchasing Managers' Index) reflects no issues with the economic situation, and numerous economists' published leading indicators for PMI also show that the economy will exhibit an upward trend in the next 3-6 months.
In addition, the CPI (Consumer Price Index) data released last night showed that inflation is still in a moderately declining channel, with no abnormalities. This means that the slowdown in the job market is more of a structural adjustment rather than a broad weakness, and inflation has not posed additional pressure. This clears the way for future interest rate cuts and the use of other monetary policy tools. After the CPI data was released, both the US stock market and the Crypto market rose.
In the long term, there are generally no issues with global liquidity. Recent liquidity fluctuations mainly stem from concerns over uncertainties in policies following Trump's presidency, as well as the recent strong performance of the dollar. These issues need not be overinterpreted.
Three. Why worry about the volatility of the Crypto market?
Despite the long-term positive trend, the Crypto market may still face significant volatility risks in the short term.
From the data provided by authoritative macro institutions, we can find some answers: Firstly, through Figure 1, we can see that the Global Liquidity Index is a leading indicator of Bitcoin's 6-week rolling return rate. The data shows that the 6-week growth rate of GLI often predicts the short-term performance of BTC prices. By observing liquidity trends, we can foresee that the decline in liquidity in the next 6 weeks may lead to corrections in BTC prices. Another institution, Raoul, has also indicated that liquidity will continue to decline in the next 6-12 weeks. This decline may trigger further fluctuations in the Crypto market.
Based on the above data, we maintain a cautious attitude towards the market in the next 1 to 3 months.
Four. How should we respond?
Given the current market conditions, the following strategies need to be adopted:
Firstly, we should reduce the proportion of altcoin holdings. This is because altcoins generally have higher volatility than BTC, and in cases where BTC performs poorly, altcoins usually perform worse, even experiencing larger declines. Therefore, reducing the holdings in high-risk altcoins such as SUI, Banana, and SOL is urgent.
Secondly, reduce leverage ratios. As the market may enter a phase of significant volatility, whether upward or downward, reducing leverage ratios can effectively mitigate the risk of liquidation and avoid unnecessary capital losses.
Finally, use options to protect profits. For most friends holding BTC, if conditions allow, options tools can be used to hedge current profits. This method can lock in some gains while reducing losses during market corrections.
Conclusion: Operate steadily and safeguard results.
In the Crypto market, volatility is the norm, but the ability to cope with volatility is the key to our success. December is the concluding phase of the year's investments, and its importance is self-evident. We need to find a balance between risk and reward, protecting this year's profit while building strength for future opportunities.
May every investor move steadily forward, navigate through volatility, and embrace broader market opportunities!
