The key to surviving the altcoin bear market lies in effective risk management.
The massive token unlocking and scarce cryptocurrency liquidity indicators are the main reasons for this altcoin crash.
Nearly $2 billion in token unlocking over the next ten weeks could cause the altcoin market to shrink further. Venture capital funds invested $13 billion in the first quarter of 2022, but the market has been falling. Now, these funds are facing pressure from investors to return their money as artificial intelligence has become a hotter investment area.
Altcoins are in the midst of a brutal bear market. Just this year, 73% of altcoins reached new highs in March. But in early March, the market situation changed.
March is a turning point, and liquidity shortages are beginning to emerge
The Bitcoin price reached a potential target of $70,000 in early March 2024. Subsequently, it gradually turned to a cautious attitude and attempted a breakthrough above $70,000.
17% of altcoins (left) reached their price high on March 14th, and all are currently in a retracement (right)
There is no doubt that we are at a critical juncture in this bull market.
Understanding and following risk management principles is what separates traders from those who end up holding on to altcoins and suffer losses, as altcoins tend to fall at the end of a bull run.
Solana’s Meme Coin Craze Explodes at the End of February 2024
South Korea’s cryptocurrency market saw daily trading volume surge from $3 billion to $16 billion (twice the value of the South Korean stock market) in the run-up to its April 10 national elections, following several promises around the cryptocurrency industry, including the possibility of allowing a spot Bitcoin ETF. Shiba Inu became the most actively traded coin for several days.
But as time passed in March, the market performance began to slump.
Behind holding on to the currency and waiting for it to rise, there may be a trap that gradually returns to zero
We will focus on high-quality, high-volume altcoins in the future. Use the dynamic average as a stop loss standard, because it is crucial to manage downside risks.
The cryptocurrency market is extremely cyclical and a conventional investment strategy of buy and hold is unlikely to work in the medium to long term. Instead, it is more appropriate to analyze cryptocurrency liquidity and the macro environment and use a trader's mindset (risk management) framework to protect capital so that you are well positioned when the market cycle is on the upswing. This is why our investment approach is generally tactical and we can take a more proactive approach when the market environment turns positive.
Now, liquidity is close to drying up, as we can see that despite lower inflation numbers this month, Bitcoin ETFs have seen significant outflows ($900 million in the past seven trading days).
With Bitcoin funding rates (and CME futures premiums) approaching zero, we may see more liquidations before the next monthly settlement date, when open interest will roll over to the next CME contract cycle (expiring on June 28). While many people now realize that Bitcoin spot ETF liquidity is primarily arbitrage liquidity (we estimate 30%-40%), they are clearly no longer sending positive market signals, and with funding rates close to zero, it is unlikely that this liquidity will return.
In March, Bitcoin ETF inflows were stagnant as the market began to worry about higher inflation data, and most altcoins reached their price highs at that time. The speed of stablecoin minting began to slow down shortly after the Bitcoin halving, failing to provide additional liquidity for altcoins. The subsequent unlocking of $2 billion in various tokens was just the final step.
With a significant increase in trading activity in March and early April, especially meme coin-related trades, many traders may have accumulated positions at poor price points. Altcoins ebb and flow, come and go, but Bitcoin is here to stay in the next bull run.
Like previous bull runs, many traders may hold on to altcoins to wait for gains, but smart traders will protect their assets by shifting positions to Bitcoin when liquidity slows.
The difference between retail investors and institutional traders is that institutional risk management will eventually force institutional altcoin traders to close their positions and stop losses at the appropriate time; while retail investors are unwilling to bear obvious losses and will continue to hold altcoins and weld the car doors shut.
As I said just now, we will mainly focus on high-quality altcoins with large trading volumes in the future. And we must do a good job of stopping losses. If something is wrong, we must run away. We have suffered too much loss this year. We must get up after falling down and know why we fell down. We cannot fall down every day.
Later, I will bring you analysis of leading projects in other tracks. If you are interested, you can click to follow. I will also organize some cutting-edge consulting and project reviews from time to time. Welcome all like-minded people in the cryptocurrency circle to explore together.
