A good way to hedge against a decline? Crypto Researcher: Consider Shorting These 3 Coins
Since rising to a high of $73,777 in March, Bitcoin has launched several months of correction and consolidation, and is currently trading below $60,000. Currently, the Cryptocurrency Fear and Greed Index sits at 29, indicating that market sentiment is in a state of fear.
Under weak trends, many investors will also consider shorting (buying down) tokens to hedge against the risk of spot declines.
Cryptocurrency researcher Defi_Mochi recently pointed out that shorting altcoins with high FDV (fully diluted valuation) and the upcoming large number of unlocked tokens may be a good way to hedge downside risks.
Based on this criterion, Defi_Mochi selected the following 3 tokens:
Immutable ($IMX): Blockchain gaming project
Market Cap: $1,776,831,688
Next cliff unlock: July 12, 2024, at $43.3 million.
Aptos ($APT): Layer1 public chain project
Market cap: $2,521,093,418
Next cliff unlock: July 12, 2024, for $67.7 million.
Worldcoin ($WLD): Another project from the founder of OpenAI
Market Cap: $496,278,729
Next linear unlock: Starting July 24, 2024, $13.3 million will be unlocked daily.
Defi_Mochi explained the reasons for considering shorting the above three projects. He believes that Aptos and Worldcoin mainly rely on market makers to maintain their unreasonable valuations, so he is more confident to go short.
Shorting low-circulation tokens may risk a short squeeze
However, for the following three tokens with extremely low circulation, Defi_Mochi believes that there may be a risk of being shorted if shorted:
Wormhole ($W): cross-chain bridge
Market Cap: $493,999,022
Next unlock: August 3, 2024, $175 million.
Xai ($XAI): Layer 3 blockchain for chain games
Market cap: $90,720,113
Most recent unlock: July 9, 2024, $65 million.
AltLayer ($ALT): Decentralized Rollup as a Service Protocol
Market cap: $201,329,640
Next unlock: July 25, 2024, $85 million.
Defi_Mochi said that he will not short such low-circulation tokens at present, but recommends buying them because of the following 3 points:
We are currently in a negative funding rate environment, and each dip allows shorts to become complacent.
Market makers on Binance can track short positions that hunt for high leverage.
If Bitcoin experiences a small rise, these low-circulation tokens may be suddenly pulled out of the market with extremely low liquidity.
But Defi_Mochi also pointed out that these low-circulation tokens are still good short-selling options if Bitcoin bubbles and rises.
What are the risks of high FDV and massive unlocking of tokens?
Fully diluted valuation (FDV) is calculated from the current market price of the token It is locked or temporarily reserved.
If the FDV is too high but the circulation is not large, there may be a risk of continued decline in the long term. A project that has only been established for one or two years has a valuation comparable to that of top technology companies, and may have signs of a bubble.
The difference between cliff unlocking and linear unlocking is as follows:
Cliffs Unlocks: Tokens that are locked are released on a specific date and will be released at a certain ratio.
Linear Unlocks: Release tokens at a fixed rate over a period of time, such as releasing a certain percentage of the total supply daily, weekly, or monthly.
Although token unlocking does not necessarily cause a plunge, Ethena Labs Research Director Conor Ryder once pointed out that if 50% of the tokens flow to early investors (venture capital, angel investors, etc.) after unlocking, they will usually face huge selling pressure.
[Disclaimer] There are risks in the market, so investment needs to be cautious. All analyzes and opinions in this article are for reference only. Users should refer to more diverse indicators to judge whether to invest, and consider whether any opinions, views or conclusions in this article are consistent with their specific circumstances. Invest accordingly and do so at your own risk.
