Summary of the Big Picture: Long-term bullish, short-term bearish

From a long-term trend perspective, I remain optimistic about the future of the Crypto market, with both the business cycle and liquidity cycle continuing in a positive direction. However, in the short term, the decline in liquidity may exacerbate price fluctuations in Crypto.

Some may ask: since the long-term outlook is positive, why adjust operations? This is because the Crypto market, as the market with the highest risk preference globally, has extreme volatility. In a bear market, even BTC can drop by as much as 80%. To improve capital efficiency, I am reluctant to let funds be trapped for a long time and also wish to avoid unnecessary psychological strain—this is particularly important for enhancing returns.

Please remember one thing: excessive volatility is the enemy of returns!

December—The most important month of the year

December will be the most important month for the Crypto market in 2024, and the outcome of operations will determine how much profit we can preserve this year.

By observing global liquidity, I believe the market may experience significant fluctuations in the future. In this case, protecting the profits already earned this year and avoiding a return of gains becomes the current priority.

Risk Preference and Liquidity

The core driving factors of the Crypto market can be summarized as 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 instance, when a company's EPS (earnings per share) rises, it indicates improved profitability, leading to more funds available for investment, and market sentiment becomes more optimistic, even willing to expand business through borrowing, which also drives liquidity to rebound.

From the data, the current PMI (Purchasing Managers' Index) in the United States reflects no problems in the economic situation, and many economists' published PMI leading indicators also show that the economy will trend upwards in the next 3-6 months.

In addition, CPI (Consumer Price Index) data shows that inflation is still in a mildly declining channel, with no abnormalities. This means that the slowdown in the job market is more of a structural adjustment rather than a comprehensive weakness, and inflation does not pose additional pressure. This clears the way for future interest rate cuts and the use of other monetary policy tools. Following the release of CPI data, both the US stock and Crypto markets rose.

From a long-term perspective, there are generally no issues with global liquidity. Recent liquidity fluctuations mainly stem from concerns about policy uncertainties following Trump's presidency and the recent strength of the dollar. These issues do not require excessive interpretation.

Why worry about market volatility in Crypto?

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 agencies, we can find some answers: the Global Liquidity Index (GLI) is a leading indicator of Bitcoin's 6-week rolling return. 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 trigger adjustments in BTC prices. Research data from another agency, Raoul, also indicates that liquidity will continue to decline in the next 6-12 weeks. This decline may lead to further fluctuations in the Crypto market.

Based on the above data, I hold a cautious attitude towards the market in the next 1 to 3 months.

How should we respond?

In response to the current market situation, the following strategies need to be implemented:

First, we should reduce the proportion of altcoin holdings. Because altcoins generally have higher volatility than BTC, and when BTC performs poorly, altcoins typically perform even worse, sometimes experiencing larger declines. Therefore, it is urgent to reduce the proportion of holdings in high-risk altcoins.

Secondly, reduce leverage ratios. As the market may enter a phase of significant fluctuations, whether upwards or downwards, lowering leverage ratios can effectively avoid liquidation risks and prevent unnecessary capital losses.

Finally, protect profits through options. For most BTC holders, if conditions allow, options can be used to hedge current profits. This method can lock in some gains while reducing losses during market corrections.

In the Crypto market, volatility is the norm, but our ability to respond to volatility is key to our success. December is the closing phase of the year's investments, and its importance is self-evident. We need to find a balance between risk and return, protect this year's profit, and build momentum for future opportunities.

I wish every investor can move forward steadily, navigate through volatility, and embrace broader market opportunities!